Friday, November 25, 2011

Nationalists and the Markets

by David Ellerton

'You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold'.

--George Bernard Shaw, 1928

1. Introduction

Recently, nationalist comrades have been asking me for my opinion on the Occupy Wall Street protests. The question uppermost in their minds is: should nationalists support these protests? Or should they oppose them?

In order to answer that, we need, first, to look at another question: what is wrong with the Western world economies today? Why is there a financial crisis?

In day-to-day reporting of economic and financial events, we heard a lot of phrases which have become clichés. Among them are the following recommendations, on courses of action, which come from politicians, journalists, economists worldwide: 'We must lower interest rates to stimulate spending'; 'We must raise interest rates to cool down the overheating economy'; 'We must raise interest rates to strengthen the dollar'; 'We must increase government deficits to put more money in the pockets of consumers, to encourage them to spend'. This sort of language, and thinking, makes up the Keynesian school of thought which has dominated economic thinking in the West, and the world, for the past sixty or so years.

Before that period, though, classical economics was the dominant paradigm. Politicians, intellectuals, journalists, economists, bankers, businessmen, all spoke the language of the gold standard. (Marx wrote the first few chapters of his 'Das Kapital' on gold and currency). This article will be more or less about the same thing. However, some readers may find it disorienting, simply because they are so used to Keynesianism, which has become part of the air we breathe. Rest assured, the economics of the matter are very simple, and I myself have no economic training - what I am writing about here I have learned from contemporary popular authors and journalists on the subject.

2. Gold

Most of the financial crises in the past forty or so years can be traced back to one single cause: America, and the world's, abandonment of the gold standard back in 1971. Under the old Bretton Woods system, the US dollar was fixed to the value of gold (the US dollar was worth 1/35th of an ounce of gold, which is another way of saying that the gold price, in US dollars, was $US35/oz.). In turn, the rest of the world's major currencies - the pound, the franc, the deutschmark, the yen, the Australian dollar, and so on - were fixed to the US dollar (even the Russian ruble was fixed, surreptitiously, to the US dollar). The prevailing monetary system was one of a gold standard and fixed exchange rates.

The basis for the system was the understanding, among politicians and economists at the time, that gold was, simply put, money. The value of gold never changes, or, if it does, it does so incrementally that any change isn't really noticeable at all. Which is why gold has been used for money for thousands of years. Nowadays, of course, we see the dollar price of gold rising or falling every day: but this is dollars fluctuating in terms of gold. Dollars fluctuate, gold stays the same. Dollars, in fact, have no inherent value - they are pieces of paper (or plastic) or digits in an electronic bank account.

So, how did the Bretton Woods gold standard system operate? The US Federal Reserve injected, or withdrew, dollars into circulation, every day, to make sure that the gold price stayed fixed at $US35/oz. Injecting huge quantities of dollars into circulation devalues the dollar: increasing the supply of dollars this way makes it less valuable. Conversely, withdrawing large amounts of dollars from circulation revalues the dollar, making it more scarce, and more valuable. (In other words, the value of a currency goes up or down with supply and demand, just like any other commodity). Before 1971, the Federal Reserve would pay attention to the market price of gold, and withdraw, or subtract, US dollars from circulation accordingly.

For example: suppose the market price of gold floated up from $US35/oz. to $US40/oz. Speculators would buy ounces of gold from the Federal Reserve for $US35/oz. and sell them, on the market, for $US40/oz., making a tidy $US5 profit each time. The Federal Reserve would see its stocks of gold disappear, and so start withdrawing dollars from circulation, until the market price of gold plummeted back to $US35/oz.

Conversely, suppose the market price were to drop to $US30/oz. Speculators would buy gold, at the market, for $US30/oz. and sell to the Federal Reserve for $US35/oz., again making a $US5 profit for each transaction. The Federal Reserve would create money - print money - and use that newly-created money to pay for those ounces of gold. By injecting currency into circulation this way, the Federal Reserve would be devaluing the dollar, and so, the market price of gold would slowly climb up to $US35/oz. again.

(At this point, the reader will ask: does the Federal Reserve need huge stocks of gold to maintain a gold standard? The answer is no: speculators won't, under this system, exchange ounces of gold for $35 at the Fed's 'gold window', unless there is a disparity between the market price of gold and the Fed's target. That is, speculation and arbitrage won't pay off. Historically, gold standards in Britain, the USA and other countries were maintained even with very small stocks of gold in the central banks).

In its train, the devaluation brought about massive inflation. When dollars buy less and less of an ounce of gold, they buy less of other things too. During the post-war gold standard years, oil stayed around $US2.90 a barrel (!) for thirty years, but, after the abandonment of the gold standard, rose to the then-ruinous price of $US35 a barrel. Other prices in the economy rose too, of course, and so did interest rates and unemployment. Needless to say, this inflation had political effects: the careers of Nixon, Heath and Whitlam were destroyed, the Western world saw political, moral and social upheaval and chaos - student radicalism, terrorism, riots, mass industrial unrest, and a general decline in morality (Keynes, famously, wrote that there is no surer way of debauching the morals of a nation than by debauching its currency). While the West was brought to its knees, the Third World was more or less wiped out. The seventies (especially in Latin America and Africa) was a decade of coups, revolutions, civil war, famine and chaos. The destruction of the Third World economies prompted millions of non-whites to migrate to the (comparatively more wealthy) Western lands - and they did migrate, first in the hundreds of thousands, then in the millions.

3. The 2000s and the Australian commodities boom
Given all this, why did America - and the world - abandon gold? America had been on the gold standard for almost every year of its existence, leaving it briefly only during the Civil War; but by 1971, it came under the sway of Keynesian and monetarist economists, who disliked the discipline of the gold standard. Nixon was told, by his economic advisors, that abandoning gold would have two beneficial effects.

The first was that, by injecting huge amounts of dollars into circulation, an inflation would result, and this would, in turn, bring about strong economic growth and low unemployment (monetarism).

The second beneficial effect was that, by abandoning the discipline of gold, the Federal Reserve could turn its attention to manipulating interest rates - lowering them, in fact. Low interest rates discourage consumers from saving their money, encouraging them to spend it instead (Keynesianism).

All of this sounds familiar to modern readers, and, in fact, none of these arguments have ever gone away. Today's journalists, politicians, central bank chairmen (like Bernanke), economists, still rigidly adhere to these doctrines. (An accompanying argument for abandoning gold was a mercantilist one: without a gold standard, or fixed exchange rates, America could devalue its currency, thereby making its currency cheaper and bringing about an export-led boom, and 'improve' its trade deficit with Japan. Again, this is a doctrine which is widespread today).

Given the prevailing intellectual climate, the odds were stacked against the survival of the gold standard. America, in fact, began to wind it down in 1967, when the Federal Reserve stopped converting, on demand, gold into dollars, or vice versa, instead paying bonds which, the Federal Reserve promised, could be redeemed for gold at an unspecified 'future date'. At the same time, the Federal Reserve began to engage in 'pump-priming' exercises, injecting large quantities of dollars into circulation, in order to bring about the economic boom that the Keynesians and monetarists had augured. Finally, it became too much for the Federal Reserve: it could not serve two masters - classical economics and Keynesian/monetarist economics - at the same time, and so opted for Keynesian/monetarism. In August 1971, with deep misgivings, Nixon suspended the gold standard, and the rest is history.

To flash forward from the 1970s to the present, we now see the underpinnings of the 2008 financial crisis. From 2000 to 2008, the US gold dollar price rose from $US250/oz. to $US1000/oz. - smashing the previous record high of 1980. This was a major devaluation. Among the accompaniments of a devaluation are inflation, and several economic pathologies. Commodity prices (oil, copper, zinc, aluminium, pork bellies, soy beans, land) start to rise, followed by prices in the service economy (waitressing, law, dentistry, bus driving, etc.).

In fact, during an inflation, there is a sequenced rise of prices through the economy. Inflation could be compared to the hot air filling up a balloon. It makes itself felt in one part of the economy before the other. During an inflation, when the commodity prices rise (and these are the first to rise), investors become convinced that there is a real profit to be had in those sectors. Land is a commodity, so is gold, so is oil. Rising metal prices in the 2000s triggered off a huge mining boom in Australia (not seen since the Poseidon nickel boom of the 1970s) and rising land prices, a real estate boom in the US and Australia. Unfortunately, all the investors in, for instance, mining, were tricked. Commodity prices may be going off the charts during an inflation, but, in the end, so are other prices (the cost of production, for instance), as well, and these will, eventually, wipe out any profit.

To use an international example. Suppose that prices for gold, copper, zinc, aluminium, lead and nickel rise to stratospheric prices in US dollars. In practice, Australia exports to the US, not to get US dollars, but to buy US goods with those dollars. Because of the weak US dollar, prices in the US rise and rise, and so all the US dollars earned by the Australian mining companies don't buy as much of a US good any more. If the US dollar declines by 50% against the Australian, the Australian buys 50% less of a US car than it did before the 50% devaluation, because US car prices have risen.

This is what economists called 'the money illusion'. Inflation, brought about by a currency's weakness, deceive people into thinking that there is a boom - when really it was just inflation.

One of the other pathologies brought about by inflation is increased levels of investment and lending. Because a dollar is losing value, every day, holders of those dollars (banks and other institutional investors) want to get rid of them as quickly as possible. The declining value of the currency means that the currency becomes a hot potato, which has to be passed from hand to hand, lest the holder gets burned. Often, too, the holder of the currency will seek to abandon it and invest, instead, in hard assets - like gold, land and diamonds - whose value doesn't change.

(Why doesn't the value of these hard assets change? Because commodities such as land, gold and diamonds aren't easily consumed, whereas commodities such as oil, coal, soy beans, wheat and pork bellies are. This gives investors additional incentive to invest in gold and land. Again, this is another reason why massive amounts of money were shovelled into mining and into real estate in the 2000s).

4. The meltdown of 2008

Under a system of floating exchanges, the value of the dollar - in terms of gold and other currencies - is completely uncertain. No-one knows what it will be worth, from one day to the next. Under a gold standard, a central banker is constrained by keeping the currency fixed to gold; under a floating exchange rate system, he can choose any target he wants - and that target can change from day to day. In the summer of 2008, the Federal Reserve abruptly changed course, and allowed the gold/dollar price fall from a (then) all-time high of $US1000 oz. to $US700 oz.

I remember, at the time, welcoming the drop in gold (and other commodity prices), because I believed it would signify the end of the inflation and a return to a measure of monetary (and financial) stability. But I didn't appreciate (and the rest of the world didn't) how highly leveraged so many investment banks (and ordinary Americans) were. They were flush with cash, 'hot money', during the inflationary investment and lending boom; now, suddenly, they found the supply of liquidity drying up. Dollars were now in scarce supply, and one of the signs of that scarcity was a falling gold/dollar price.

It is a terrible situation for a borrower to be in - to have borrowed huge amounts of dollars when they were cheap, and now, all of a sudden, having to pay them back when they were expensive. To illustrate this, imagine that everyone holding Australian dollar balances in bank accounts were to check their accounts, one morning, to find that 33% of the money in there yesterday had vanished: that is, the total supply of Australian dollars had shrunk by a third. The economic consequences would be catastrophic. Undoubtedly, with fewer Australian dollars in circulation, the dollar would become more valuable, and buy more, and so prices would drop across the board. But the old debts, from the time before the magical disappearance of 33% of Australian dollars, would remain at the old price level.

To return to the summer of 2008. At the height of the deflation, the Federal Reserve embarked on a new policy: paying interest on excess reserves. When one bank - say, the Commonwealth - sends a request to withdraw money from another (say, Westpac), Westpac has to make sure that it has sufficient cash, on standby, to accommodate that demand. That store of cash is called reserves. Banks keep these reserves close to hand, in their vaults, so to speak, and also deposit any excess reserves in special accounts with the central bank. In 2008, the US Fed introduced a policy of paying interest on those excess reserves, and at a favourable rate as well. This was disastrous for failing banks and investment funds, which, at the time, needed to borrow liquidity - and fast - from other banks in order to meet their commitments, which were quite substantial. Deflation meant that homeowners and other borrowers were unable to repay their loans, and so banks and other financial institutions which had lent, heavily, to these borrowers were, all of a sudden, in danger. When an individual, of course, needs a huge amount of money very quickly, he can try and sell his house or car. But, often, assets like cars and houses aren't turned into cash very quickly - that is, they are not liquid. Failing banks were now in the same position in 2008. Unable to turn their assets into cash quickly enough, they needed to borrow liquidity - i.e., excess reserves. But the other banks which could provide that liquidity were less inclined to lend their money when more profit could be made by depositing it with the Fed and having it earn interest. One of the consequences was that the US stock market plummeted on the announcement of the Fed's new policy in October.

Because of the rapid appreciation of the US dollar, the US economy in 2008 underwent a brutal, forced deflation. Oil fell from $US140 a barrel to below $US40, while the US Consumer Price Index went from 5.5% in the June quarter to 0% in December quarter to -2% in March quarter 2009. The US dollar also appreciated against currencies like the euro.

(It is worth pointing out that, up to deflationary spell in late 2008, the world's currencies also lost enormous value. The Australian gold dollar price, for example, went from $AU550/oz. in 2004, where it had been sitting for years, to around $AU1300/oz.).

5. Measuring the market's worth

The deflation of 2008 had a devastating effect on the capitalist economies. But how do we measure that effect?

One method is by looking at the value of the stock market. The DJIA is a measure which records the value of a random average sample of US capital - a chunk of the capital of America's biggest employers and producers. If we were to go to a casino, gather up all the chips of the wealthiest gamblers there, place them in a pyramid, and then take out a chunk of that pyramid - then we would have the DJIA (in an American casino), or the All Ords (in an Australian), or the London FTSE, or the German DAX...

The way to record the value of that handful of chips is to divide it by the price of gold. In the 1970s, the DJIA bottomed, and bought only 1 oz. of gold; it recovered, under Reagan and Bush Sr., in the 1980s; it reached an all-time high of 42/oz. during August 1999, at the peak of the late-90s boom and the biggest bull market in the history of the world; in Bush Jr's first term, from 2000 to 2004, it was at a comfortable 25/oz. In Bush Jr's second term, it declined to 17/oz.; in 2008, to 11/oz.; and, during the darkest days of the 2008 financial crisis, it bottomed at 6/oz. - where it had last been in the early 1990s. Similarly, Australia's All Ords hit an all time high of 14/oz. in 1970, stayed at 1/oz. during most of the 1970s, climbed above 7/oz. for the Howard years, and is now around 2/oz.

This method of assessing a market's value isn't perfect, of course, and doesn't give the whole story. But, contrary to those who say that the stock market represents 'pure speculation' with no relation to 'the real economy', the stock market's value does correlate to economic growth, a rising standard of living and low unemployment: in a bear market (like the 1930s, or the early 1970s, or the late 2000s) the economy of the 'real world' hurts too, with these economic indicators going into reverse.

6. The present situation

One would think that 2008's disastrous monetary episode would bring pause to the world's central bankers and make them rethink monetarism and Keynesianism, but no. Bernanke's response - an orthodox Keynesian/monetarist one - was to begin a program of 'quantitative easing', that is, pumping huge amounts of money into circulation. The Federal Reserve perceived, correctly, that the crash of 2008 was mainly because of the liquidity; so it reversed course, and began adding huge amounts of that liquidity. It overshot the mark, however, and the US dollar was again devalued to an enormous degree: the gold-dollar price climbed to over $US1900/oz. this year, beating all records. Even the Australian dollar is now worth more than the American.

In the meantime, the Obama administration undertook a Keynesian program of 'public works' spending (that is, spending on 'jobs creation' for mainly Afro-Americans) and deficit spending, which produced zero jobs. Obama has reacted to the failure of his policy by declaring the need for higher taxes (on 'the rich') to pay for more jobs programs which create no jobs. Obama and the Democrats are mentored by Jewish advisors, such as Bernanke, Timothy Geithner, Robert Reich, Larry Summers and Paul Krugman, who can't understand why the orthodox Keynesian formulas aren't working.

In Europe, the Continent is seeing a 'debt crisis'. Greece has brutally high tax rates - a 16% payroll tax on employees, 28% on employers, for example - which encourages tax evasion, and brings about economic stagnation. As a result, the Greek government is unable to pay the interest on its debt. The European bankers, which are heavily invested in Greek bonds, stand on the brink, possibly to the same extent that banks did back in 2008.

What if Greece were to leave the euro and return to the drachma? The results would be disastrous. Greece's debt is denominated in euros, and, were Greece to return to the drachma, the drachma's value would probably plunge against the euro. If it fell by 50%, and became a near-worthless currency (which it was before Greece adopted the euro), Greece's euro-denominated debt would be worth twice as much.

The Keynesians and monetarists are suggesting this course, because they want Greece to print away its debts - that is, print billions of worthless drachmas and pay its debtors that way. It's the oldest trick in the book, financially speaking, and one Weimar Germany used in its attempt to escape its Versailles debts, and Zimbabwe too (for its debts to the UK). (Probably, it was old in the days of ancient Egypt and Babylon).

To illustrate this with an example. The states and territories of Australia are on a system of fixed exchange rates. Tasmanian dollars exchange, at an equal value, to Queensland dollars; Northern Territory dollars exchange on equal value with Victorian dollars. In other words, Australia enjoys a monetary union not unlike that of the Eurozone. Were the New South Wales government to become bankrupt, it could, possibly, pay down its debts by leaving the union and inventing its own currency (New South Wales dollars) and, by resorting to the printing press, pay off its debtors in New South Wales dollars, in just the same way as the Keynesians and monetarists are advocating for the Greek government. But this course of action would be unwise.

One can see that, in 2011, the old way of doing things - Keynesian, monetarism, floating exchange rates, the 'Bernanke standard' (as opposed to the gold standard) - hasn't worked; on top of that, the governments of Europe and America want socialism for the bankers and brutal austerity (spending cuts and tax hikes) for everyone else. Hence, Occupy Wall Street and the outrage - really a moral outrage - against bankers, financiers, politicians, economists and EU bureaucrats, who make up the ruling class of the Western world.

7. Greed

At this point, a critical reader may argue that, so far, I have been too far soft on finance capitalism and the 'capitalist greed' which got us into the present crisis. The way I have presented things here, it as though all the people who invested, so heavily, in banking, finance, commodities extraction (gold mining, oil drilling, etc.) and real estate were simply responding to the economic incentives of that time. These incentives were false, distorted, because of monetary policy, and in particular, the absence of a gold standard.

There are a large number of corollary causes of the 2008 financial crisis. One is the deregulation of American banking in 1999, which allowed ordinary deposit banks to engage in the risky enterprise of investment banking; the other is the proliferation of strange financial derivatives in the 2000s (such as Collaterised Debt Obligations and Credit Default Swaps) which helped finance the sub prime mortgage boom. Then, in America and Australia, it was the generous capital gains tax treatments of property, introduced in 1997 and 1999 respectively, which encouraged heavy investments in that sector. As well as that, there were the infamous 'mark to market' accounting rules, in America in the 2000s, which led to banks and other investment institutions having their assets valued, for accounting purposes, on the basis of what they would fetch on the market at the time. (Because of the bear market at that time, those assets were valued at a very low rate indeed, which meant that, on paper, those firms appeared broke).

All in all, though, things wouldn't have gotten to where they are now, had we not abandoned the gold standard in 1971.

It is true that there have been speculative bubbles occurring at the same time that the gold standard was in full swing. In the late 1920s, for example, there was a Florida land boom, which took place even though the US dollar was firmly fixed to gold at the rate of $20.67/oz. all throughout that decade. Bankers can always lend out of stupidity and investors can always borrow, and invest, out of stupidity. Sometimes these speculative bubbles can occur and have no relation to the wider economy as a whole (i.e., they come about regardless of what the fiscal and monetary policy is at the time); at other times, they are closely related to it.

As an example of the latter, there is the example of the US oil-producing states, such as Texas, which, in the 1970s, enjoyed economic success which was in contrast to the other states of the US at that time, because of the commodities boom. John Tamney, in 'Governor Perry's Speech Disqualifies Him for the Presidency', 18/10/2011, writes:

Today's Texas boom is merely a repeat of the 1970s when a cheap dollar money illusion similarly reared its ugly head.

Much like today there was a rush among Americans to Texas in the ‘70s as a nominally high price of oil turned the commodity state into a boomtown relative to other parts of the U.S. wilting under those same weak dollar policies that invariably retard investment in growth initiatives. Of course what Perry doesn't remember is that with Ronald Reagan's strong dollar ascendance in the ‘80s, the price of oil collapsed. And with the collapse of crude, so did the Texas economy decline such that its unemployment rate in the ‘80s was two percentage points higher than the national average. That U.S. taxpayers were forced to bail out so many bankrupt Texas S&Ls in the ‘80s was clearly a function of the money illusion luring lots of energy investment that logically went bust once dollar policy returned to a more credible course.

Of course, the oil boom in the South was the subject of the popular American early '80s soap, 'Dallas'. The mining states of Queensland and Western Australia today fulfil the role of Dallas, Texas, in today's Australia. Should another sustained downturn in gold and other commodities occur, as it did in the early 1980s, Western Australia and the Australian mining sector as a whole will be in the same disastrous position as the Texans and Dakotans, and the Middle Eastern oil producers, at that time. They will become victims of a ruinous deflation, which can be just as harmful as inflation.

8. Occupy Wall Street and the Jews

Obviously, given what I have written here is correct, the solution to our present economic problems would be a return to gold. At present, the Federal Reserve adopts an interest rate target: it adds (or subtracts) currency from circulation in order to raise or lower interest rates. Most central banks around the world, including Australia's Reserve Bank, and Europe's European Central Bank, do the same. In order to restore a gold standard, the Federal Reserve could abandon its interest rate targeting, and simply keep gold fixed at a certain level - say, $US1600/oz. The rest of the world could peg their currencies to the US dollar, and the world would be back on gold.

One effect of this would be a pruning of the (at present) gargantuan financial sector. Louis Woodhill writes that the financial sector in the US took up only 4% of GDP, or $US42 billion, back in 1970; now it takes 8 percent, or $US1.2 trillion in 2010. The reason why the financial sector has become bloated, and so many derivatives have appeared, is because of the uncertainty produced by the lack of a gold standard. For instance, a trucking company has to consider what the price of fuel will be in six months. In today's world - where the price of oil regularly crashes, and then rises - a wrong guess on the price of fuel can have serious consequences. Which is why derivatives exist, to insure the trucking company against fluctuations, or lock in a prearranged price for fuel. Which means that derivatives can be a good thing. But surely it would be easier, and cheaper, to go back to gold and the 'good old days', when the oil stayed the same, despite decades of wars and upheavals in the Middle East?

So why can't we return to gold? The answer is complex, but, in my opinion, it comes back to question of race and ethnicity.

Theoretically, anti-Semitism and anti-Islam are sophisticated ideologies. They both subscribe to views regarding Semitic (that is, Jewish, or Muslim) behaviour which stem from the beliefs of the respective tribes: Islamic behaviour comes from the Koran; Jewish behaviour from the Talmud, Judaism, Jewish religious and cultural history (or what Gilad Atzmon calls 'Jewishness'). The classical anti-Semitic thesis is not that all Jews are evil and malign (although quite a few Jews, like the mass-murderers Beria and Henry Morgenthau Jr. (originator of the Morgenthau Plan) could be described as evil and malign): no, it is that when Jews predominate in a certain area (e.g., business, economics, politics, finance), their influence tends to be destructive - even when the Jews in question intend to do good (and there are plenty of well-intentioned Jews in the US Jewish élite).

A partial confirmation of this thesis can be found when one analyses the behaviour of Jewish-Americans who predominate in the US (and, increasingly, transnational) financial sector, and also at the highest levels of government (which are in charge of US fiscal and monetary policy, and financial sector regulation). Jewish-Americans tend to predominate as opinion-makers - in journalism, government, academia, and so on - when it comes to US policy on Israel and the Middle East but also on the economy and finance. (One only has to look, for instance, at how many 'talking heads' on a US finance television program are Jewish-American). It is these American Jews who really set the tone when it comes to US economic policy, and they have done so for years, just as they have in US foreign policy in the Middle East.

Yockey writes that Jewish-Americans have political dominance in the US, and that they achieved this dominance in 1933 (which he calls the 'American revolution of 1933') with the election of Roosevelt. But there was a second revolution, a kind of financial revolution, which took place in 1971.

For nearly two hundred years, American economic success had been founded on the talent, know-how and skill of Anglo-Saxon American men, and on the gold standard. America (and other gold standard countries, e.g. Britain) had gone off gold, temporarily (usually during a period of war), but had always returned to it. Classical economics reigned. Keynesianism and monetarism had always been around, in some form or another, but the sturdy Anglo-Saxons stuck to the old classical ideas for monetary policy (without ever, it must be said, fully understanding them). It was a case, so far as Anglo-Americans were concerned, of having the correct actions (i.e., maintaining a gold standard) but rather vague ideas as to how the whole thing worked.

In 1971, however, Nixon (counselled by the Jewish-American economists Herbert Stein and Milton Friedman) took America off gold, and monetary chaos broke out.

Something that a gold standard does is constrain central bankers to keeping the currency firmly fixed to gold: other than that, they don't have much to do. In a floating, gold-less, world, however, the central banker adds (or subtracts) liquidity at his discretion, in order to 'fight inflation' or to 'increase inflation' and thereby 'create jobs'. In other words, he relies not on a fixed rule (i.e., a gold standard) but on his own individual judgement. Which means that he, in order to make a success of things, must be a very clever and far-sighted individual. A genius, in fact. So, in the post-1971 era, we saw the rise of the Jewish genius central banker - Ben Bernanke and Alan Greenspan (the so-called 'Master of the Universe').

It has to be said, too, that Jewish-Americans, in the chaotic post-Bretton Woods era, did do some very clever, innovative things and devise some innovative financial products. But then, this is part of the perceived Jewish ability to make a buck in times of economic chaos. As Nathan Lewis writes, in his study of the Weimar-era hyperinflation:

The [German] middle class failed totally to respond to the inflationary environment with rational financial actions. The middle class was accustomed to investing in government bonds, and stayed with their bond investments until they were finally obliterated. Only a very small subset of individuals -- mostly Jews by the sound of it, as one would expect given Jews' better understanding of finance and speculation -- moved their assets into inflation-proof vehicles such as gold or foreign currencies linked to gold. For the most part, the middle class was completely bewildered by the whole episode, never able to understand rationally what was happening to them. Their assets were stripped as they were sold to pay for food. Grand pianos, paintings, automobiles, high-quality furniture, expensive furs, jewellery, silverware and the like were sold for a few pounds of potatoes. The middle class seems to have been able to hold onto their houses, but beyond that they were scraped down to the literal shirts on their backs.

['Learning from Germany', at:]

The question is: were the financial innovations designed to shield investors from the effects of monetary chaos really necessary? The markets, and the economy, were, in many ways, stronger in the 1960s (in the US, Australia and the world) and it was in that period that we did without some of the novel financial practices introduced in the 1970s.

It is impossible to quantify how many people have benefited from monetary chaos and floating exchange rates, let alone which specific ethnic groups, e.g., Jewish Americans. Something we can be sure of, however, is that there would be tremendous intellectual resistance from establishment Jewish-Americans against the reinstitution of a gold standard. The majority of Jewish-Americans in business, finance, politics, academia, journalism, would put up a fight against a return to gold; each of these opposing Jewish-Americans would differ as to why gold is 'wrong'; they would only agree that is 'wrong'. (One can find a handful of Jewish-American commentators, of course, who do advocate a return to gold; but these are not establishment voices to the extent that Paul Krugman is, or Milton Friedman was). The classical anti-Semitic model of Jewish behaviour predicts that Jews don't want to solve problems, they want problems to continue - the same problems that they helped introduce. We can see a partial confirmation of that thesis in our problems today.

Interestingly, some Jewish-American journalists, publicists and pro-Jewish/Israel activists (all the same thing these days) have accused some in the Occupy Wall Street movement of "anti-Semitism". How much substance there is in this is difficult to say: one first has to define "anti-Semitism", something these Jewish-Americans are reluctant to do. What I think exists, in the Occupy Wall Street movement, is an intuitive recognition that Jewish-American domination of politics, and finance, hasn't worked. That is, as policy-makers, Jewish-Americans are guilty of wrong actions; as opinion-makers, wrong ideas.

9. Options for Australia
Can't Australia return to a gold standard? In truth, gold standards only work for very large countries (or economic zones, e.g., the Eurozone).

Supposing that, for instance, the Australian Reserve Bank had maintained its currency at $AU550/oz. from 2004, while the rest of the world (Russia, China, America, Britain, the Eurozone) went on to devalue theirs. Australia's currency would, more or less, be gold, and, in effect, become Australia's most valuable export. All the rest of Australia's industry would be crushed. At present exchange rates, one Australia dollar would have bought $US3.16.

Switzerland, in the 1970s, tried the same experiment: it kept its currency fixed to gold in the 1970s, while the rest of the world was floating, and devaluing, its currencies, but eventually gave up the exercise after the crushing of (the already very small) Swiss industry.

Strangely, Switzerland is now suffering from a similar problem. The Swiss franc is quite strong, relative to the euro, and so, at the margin, Swiss shoppers prefer to go to the neighbouring Eurozone country of Germany to pick up cheap bargains. Japan is suffering from a strong currency, relative to the US dollar and the euro, as well, and there is fretting, among Australia's commodity producers, over the high exchange rate of the Australian dollar compared to the American.

This is why, when one country devalues dramatically, as the US has done, sooner or later, all the other countries in the world must devalue. Otherwise, the country has to suffer the horrible effects of deflation - when the rest of the world's prices rise compared to the country's own. (Such effects can be mitigated if the country lives in complete economic isolation from the rest of the world. Cuba, perhaps, qualifies, as does North Korea; but both countries are dependent on the outside world for aid, and that aid is given to them for free).

Only the big economic producers, with a big internal market, can cope with a gold standard: the USA, Russia, the Eurozone, China. Small countries, with a small currency area (that is, the economic zone in which the currency is used), such as Australia, Vietnam, Cameroon and Paraguay, cannot do it. If the US is on gold, it matters little if, for instance, Thailand or Peru or Iceland choose to devalue their currencies against the US dollar. But, if those countries were on gold, and the US was on floating exchange rates and devaluing its currency (as it has been for the past ten years), then those countries would be in trouble.

One option for Australia is to form a 'Pacific Union' with New Zealand and the Pacific countries, with one currency (similarly, it has been suggested, in the Scandinavian press, that Sweden, Norway and Denmark form a 'Nordic Union'). In such a union, perhaps, a gold standard perhaps can be implemented, because the currency area is big enough.

In the interim, however, Australia's best course of action would be to abandon interest-rate targeting and take up the policy of fixed exchange rates with a larger trading partner - e.g., Japan, which has, at the moment, a strong currency. The Reserve Bank would expand, or contract, the supply of dollars to meet the exchange rate target, that is, to keep the dollar fixed to the yen. (In just the same way, the Reserve Bank expands or contracts the dollar supply in order to keep the overnight interest rate fixed at, say, 4.75%).

10. Options for nationalists

Given all this, should nationalists be advocates for a return to gold and fixed exchange rates? The answer is: not really. The main problem is that the topic is mainstream, politically. Advocates for gold regularly have opinion-pieces published in Forbes, the Wall Street Journal and the rest of the mainstream right-wing press. They are also, too, part of the campaign - behind the scenes - for Republican candidates in the upcoming US presidential election. As well as that, one can detect, in the political mainstream, a growing unease regarding the present monetary system, a recognition that it doesn't work and hasn't been working for the forty years since the break-up of Bretton Woods. There isn't widespread agreement that the gold standard is the way out of our predicament, only that the existing system needs to be changed.

Possibly, the world has been too long off gold ever to return to it: central bankers lack the experience of implementing, and maintaining, a gold standard, and perhaps they couldn't do so today even if they tried. In any case, we are not returning to gold any time soon, but that is beside the point. Nationalists shouldn't embrace tendencies which are part of the political mainstream.

Take environmentalism, for instance: in 2011, everyone is an environmentalist. Even the biggest multinational corporations want to be portrayed as friends of the earth and lovers of the environment. As anyone who works in an office for a big company knows, the cafeteria is decked out with separate rubbish bins for recyclable waste, organic waste and 'landfill', and all employees are meant to take care and put their rubbish in the appropriate bin. All of this would have been unthinkable twenty years ago.

Supposing that a big nationalist party declared itself to be 'environmentalist', and ran on a green platform. The question has to be asked: why would anyone vote for a nationalist party on the basis of its 'green' credentials? Environmentalism and nationalism was a radical combination back in the days of Weimar Germany, and a vote-winner for the NDSAP (the NSDAP, perhaps, was the first green party). But now, everyone is a green, and if any voter wants environmentalist policies, they will vote for the Australian Greens, who stand more of a chance of getting elected than any nationalist party. Similarly, there are other popular Green parties in Europe (mainly on the Continent) which do a better job with environmentalism than any nationalist party ever could.

No, we need to concentrate on the racial and anti-immigration platform because, among other reasons, the political mainstream can't pilfer it from us. As well as that, there are other policies out there which any mainstream politician or journalist would be reluctant to appropriate. One such policy would be, for instance, of all meat and other animal products (including leather), which the electorate would, for obvious reasons, reject outright. That is just one example. There are probably a few others which would serve our need for product differentiation - making nationalism radically different to anything else out there.

But, by all means, nationalists should study the topics touched upon in this article: economics, exchange rates, monetary policy, etc. The more familiarity they have with the present mainstream discourse on these subjects, the better.

The only difference between us, however, and the mainstream writers on these subjects is: we nationalists look for the deeper underlying causes of things. An everyday economist or journalist will look at what happened to the world once it left gold; a nationalist, on the other hand, should be asking why - what were the underlying racial (and spiritual) causes?

Tuesday, November 8, 2011

Overpaid, and loving it.

By Michael Kennedy

The world is stagnating after the Global Financial Crisis of 2008.  The cowboy bandits of Wall Street, the architects of the GFC, perhaps the only accomplishment outside of growing their own portfolio, got off basically scott free.  Many are expecting Global Financial Crisis Mark II.  As every cloud comes with a proverbial silver lining, the silver lining around the clouds of the financial storm is the increased awareness of people that something is wrong, and something needs to be done.  Discussion about the flaws of our financial system are propelled by the sense of urgency and despair.  The "Occupy" movement is gaining traction and gaining support.  They may not understand the issues and have much of an idea of the cause of financial catastrophes, and some may be there purely to try and promote an even worse alternative, but they at least understand that morality has a place in economics.  That's a start, a good start.

The mood has certainly shifted.  Misplaced optimism about a never ending housing bubble is all but gone and something else is happening which is even more foreboding.  The media is now openly stating that the boom is finished, and that things may well be on their way down.

An article in The Age1 by the economics writer for the Sydney Morning Herald titled "Top Bosses' riches are undeserved"1 doesn't just call into question whether our top CEO's are overpaid, but openly states they aren't.  A bold move, for a mainstream publication.

Her argument is that in Australia, we have many Oligopolies, and that making a profit in an Oligopoly isn't that hard.  Corner the market, and you have your customers hostage.

Our greatest period of economic growth and prosperity, a period when the standard of living was on the increase, rather than the current trend downwards, was during a period when high incomes were taxed quite thoroughly, and where CEO remuneration where closer to that of average worker than today.  Arguments that we NEED to pay our CEO's exorbitant ransoms fall flat as soon as one realises that our current economy is in a miserable state.  The large quantities of money that CEO's rake in and pull from our economy seems inversely proportional to the health of our economy.  Given the sick state of Western economies, we are clearly paying big amounts for nothing, yet CEO's, like snotty school children stamp their feet down and demand more and more, lest they leave.

They know where the door is.

The arguments that they, Free Market ideologues, 'too much Ayn Rand' Capitalists and their assorted lick spittles put forward as justifications are nonsensical at best.

One argument is risk.  CEO's deserve a Kings ransom because of risk.  Given that they shed jobs at an astounding rate, it can be hardly argued that they get paid because they 'risk' losing our jobs.  If the share price of the stock of the company can increase through out sourcing, off to India those jobs go. Also, during a bull market, making a profit and increasing your share price is a given, no risk there. The only personal risk is their career, their job.  But when the WORST case scenario is that you leave with hundreds of thousands, or more likely, millions of dollars, it can hardly be considered a risk. Many Australians would jump at the chance to take a risk, where the losing position is making enough money to be set for life.  Risk, hardly.  A CEO can run a company into the ground, lose hundreds or thousands of jobs and even commit fraud, and come out better off.  Ralph Norris has little to worry about.  A $16 million per-annum pay packet, and a taxpayer guarantee to back up the banks in case they fail.  He has risk, but it is the government which ultimately is stopping the banks from failing, through regulating them, and underwriting them with tax payers money.

Another popular argument is the importance of their job.  Well, when neurosurgeons, ambulance drivers and pilots get paid millions, I'll take this argument seriously.

The fact is, our corporations, our businesses have been hijacked by a boys club, an inner circle of parasites who are merely using the economic instruments that others have built as a vehicle for bleeding our country dry.  We don't live in an ideal free market economy, or even a Capitalist one.  We live in a plutocracy, where corporate interests have bought our politicians, and our supposed "free market" has been usurped for the benefit of a few crony sociopaths who masquerade as entrepreneurs and have suckered many others into believing that they are anything other than socialist crooks.

To go against this excess greed is not advocating socialism, or a desire to be like North Korea.  In fact, if anything, our corporations are replicating that philosophy here.  It is highly unlikely that North Korea's leaders choose to be paid marginally more than their workers.  They no doubt do well for themselves, because they too, of course, deserve it, or so they would argue.  North Korea's boys club is just as busy convincing their populace that their austere lifestyle is necessary, while they horde the excess for ourselves.  Sound familiar?  Profits are privatised and losses are socialised.

Why are there huge remunerations, and why aren't ordinary Australians, who are supposedly now Howards "mum and dad" shareholders simply exercising their right to vote against this excess in companies they part own?  All working people are supposedly shareholders through their superannuation, and we are constantly reminded that we must have a strong share market and not interfere with super profits as it is in our interests.  But why don't we do anything about it?  When you look at who actually owns the shares of these companies, it is generally large financial companies.  You may own parts of Australian businesses through your super, but it is your super fund which votes.   Quite simply, because shares are owned by similar large companies, they are the ones who exercise power, and they would benefit from voting for larger and larger remunerations, as it sets the industry standard which will apply to them.  If you are a high level executive of CEO of a company which owns shares in other companies, then voting for a pay increase in the companies you own, means an increase for you as well.

There are people who are worthy of being wealthy.  People who are truly entrepreneurs, who actually create a business and enhance the nation.  Australians are not succumbing to "tall poppy syndrome", but are rightfully outraged at what is essentially hoarding through unproductive means wealth.  They are outraged that our nation, our livelihoods and futures are being stripped so someone who knows where their next thousand hot meals are coming from, and has already a lifestyle better than pretty much any human who ever lived, can get even more.

True entrepreneurs are people like Dick Smith, who has added to our business sphere, who has supported the nation which game him such opportunity.  Even now Dick Smith is still supporting the nation, arguing against our unsustainable population growth and supporting Australian made products by offering Australian made and owned varieties of popular foreign owned goods. Dick Smith is an example of the type of wealthy person we could use more of, people who's personal wealth represents the wealth that that person adds to our nation.