The free market is a system of cooperation
for mutual benefit.

Via Operation Twisted Logic, an article by Detlev Schlichter, author of Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown:

… Like all state bureaucracies, the Fed is in fact struggling with problems that are predominantly of its own making. The Fed is the reason we are in this crisis. Or, more specifically, the present economic crisis is the inevitable consequence of the political decision to adopt a system of unconstrained, constantly expanding fiat money, in which the central bank, in its role as lender of last resort, systematically encourages bank lending and thereby the extension of credit on the basis of money printing rather than true savings. This system came into full bloom only in 1971, when Nixon severed the last link to gold and thus initiated, for the first time in history, a global system of unrestricted fiat-money creation.

The truth behind the deepening economic crisis is that, for 40 years, politicians have either not understood the monetary system or have acquiesced in the debasement of money to pay indirectly for promises which could not be funded out of taxation. The inevitable result is this crisis with its profound consequences for the welfare of hundreds of millions, perhaps billions, of people.

Sooner or later, the intellectual elite will have to accept that artificially cheap credit cannot overcome the simple law of reality that production must come before consumption. Low interest rates ought to be a sign of prior production and prosperity but central banks have perverted that crucial price signal for decades, massively misdirecting honest entrepreneurship.

There is before us a deeply painful correction. I wish it were not true – no one wants it – but neither denial nor despair will carry us through to lasting prosperity.  We urgently need deregulation, balanced budgets, simpler and lower taxes and monetary reform. Less would be mere tinkering.

Read Detlev’s full article here.

A great lesson on inflation from Frank Shostak appears on mises.org, including this quote from Ludwig von Mises:

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, that is, the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. …

As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.

The point is that our monetary system is designed to produce inflation by encouraging bank lending and, when money creation through that mechanism falters, “Quantitative Easing” takes over. A better term would for all this would be be “robbery”.

Read the rest of the article here:  Inflation Is Here, and It Is Going to Get Worse – Frank Shostak – Mises Daily.

You may also enjoy The Crime Known as Quantitative Easing and the Violation of Mr Smith at The Cobden Centre.

Fortunately, these ideas are taking off. See for example the Adam Smith Institute’s What is inflation?

Via Find out more about a career in the European Union – Telegraph:

Of course – it’s not for the faint hearted. The work is challenging. The EU Civil Service is relatively small. From your first day, you can expect to have a decent level of responsibility – you will instantly be the ‘go-to’ person on a particular subject.

So if you are looking for a career where you really get the chance to test your ability on a daily basis then the EU Civil Service could be for you.

The EU’s policies affect over 500 million citizens across 27 countries – not to mention policies on climate change, external relations and development which reach across the whole globe. So the work you do will be highly challenging but very significant.

Instant authority which tests your ability on policies that affect over 500 million people? Is that wise? 

I am reminded of the Peter Principle:

In a hierarchy, every employee tends to rise to his level of incompetence.

Via ConservativeHome’s Platform: Steve Baker MP: The EU is not yet beyond ridicule:

I enjoyed delivering a brief polemic against EU spending in yesterday’s debate on the 16th consecutive failure of the EU budget to pass audit. Over 90% of EU spending was “materially affected by error” but I shared three stories which were apparently within the rules.

• The €500,000 payment to two fishermen to scrap their boat in the interests of reducing overfishing, which cleared their debts and paid for a new, smaller boat in which they continued fishing.
• The astonishing €8.5 billion spent failing to improve infrastructure in Sicily.
• An incredible €2.5 million to support an Austrian nomadic contemporary dance troupe.

These were just three examples selected from a briefing by the superb OpenEurope. My constituents should not be paying for this and yet we find we cannot legally withhold their money from this asinine bureaucracy.

It would be too easy to declare the EU beyond ridicule but it simply isn’t. Here is a joke I received from a stalwart Wycombe Conservative this morning: [...]

Read the rest of the article at ConservativeHome.

Compare and contrast:

Via Bond bubble burst will gut gilt investors, warns Merrill Lynch – Telegraph Blogs:

Never mind what the Bank of England monetary policy committee says about interest rates on Thursday. One of the biggest wealth managers in the world is discretely warning its income-seeking clients to beware of bonds issued by the British Government; generally known as ‘gilts’.

Merrill Lynch Wealth Management fears that despite the apparent security of gilts, a combination of rising inflation – already underway – higher interest rates and the cessation of quantitative easing – both widely anticipated – could create a “perfect storm” for investors who buy these bonds at current market prices.

And via Friedrich August von Hayek’s Nobel Prize Lecture (emphasis mine):

In fact, in the case discussed, the very measures which the dominant “macro-economic” theory has recommended as a remedy for unemployment, namely the increase of aggregate demand, have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity. The fact is that by a mistaken theoretical view we have been led into a precarious position in which we cannot prevent substantial unemployment from re-appearing; not because, as this view is sometimes misrepresented, this unemployment is deliberately brought about as a means to combat inflation, but because it is now bound to occur as a deeply regrettable but inescapable consequence of the mistaken policies of the past as soon as inflation ceases to accelerate.

Hayek’s remarks about the affect of new money on unemployment are of general applicability and might be considered an extension of the Cantillon Effect (PDF). Money is not neutral: where it is injected into the economy matters. New money – whether through QE or credit expansion in excess of real savings – certainly creates economic activity, but it also distorts the structure of activity into shapes sustained only by the injection of new money.

And so now we see that QE – injecting new money into the bond market – has created a problem in the bond market.

You can find out more about the errors of QE here.