“One man scorned and covered with scars still strove with his last ounce of courage to reach the unreachable stars; and the world was better for this.”

— Cervantes, Don Quixote

MONDAY WAS NOVEMBER 5, a red-letter day in the history of revolutionary politics.

As you may know, it was on this day that Englishman Guy Fawkes was arrested in 1605 while attempting to blow up the bustling House of Lords during that year’s opening of Britain’s Parliamentary session…

Fawkes was part of a conspiracy launched by a handful of militant British Catholics to simultaneously assassinate King James I and most of England’s Protestant ruling aristocracy — using approximately 1,800 pounds of barreled black powder stashed in the basement of Westminster Palace. Ever since, the fifth of November has been commemorated in the U.K. and other areas strongly tied to British history, and is today perennially celebrated as Guy Fawkes Day (or Night).

In keeping with this spirit of political and religious upheaval, November 5, 2007 is when the so-named “Ron Paul Revolution” set the current record among 2008 Republican U.S. presidential candidates for campaign funds raised in a single day: $4.07 million. This prodigious sum was generated through an ingenious Web campaign tying Paul’s presidential bid to that historic attempt at fiery rebellion Fawkes nearly pulled off 402 years ago.

Undeniably, shrewd campaign gimmickry was greatly responsible for this single-day avalanche of cash, which has no doubt catapulted Paul into contention for the lead in fourth-quarter campaign funding. Coupled with Paul’s surprising fourth-best fundraising effort among GOP candidates in the third quarter, Paul’s “Revolution” seems clearly on a roll…

But more importantly, this snowballing support serves as a revealing barometer of disunity among rank and file American Republicans. And today, I want to consider for a moment what that could mean.

Before I get started, let me say that I intend this essay to focus on what I perceive as the broader implications of Ron Paul’s 2008 presidential campaign, not necessarily to be an endorsement of his candidacy. There are enough columnists out there carrying his torch already, especially in the universe of libertarian thought…

That being said, in the interest of full disclosure I must confess this: I have met and spoken to Candidate Paul, heard him lecture in person, and even had the honor of being a fellow speaker at this summer’s FreedomFest in Las Vegas, where Paul was the Keynote. And in my opinion, he’s a sincere, bright, appealing candidate who makes a lot of sense.

But like I said, that’s neither here nor there.

“A little revolution now and then is a good thing…”

— Thomas Jefferson

Unlike with every other presidential candidate in recent memory (or in the current crop), the main question about Ron Paul isn’t whether he means what he says or not…

According to everything I’ve seen and all I could dig up, Paul is a man of sterling character and reputation. He’s clearly sincere in his stated desire to end the war in Iraq, reform, shrink or eliminate most every agency or institution of the government, restore a true laissez-faire economy, and return America to a system much closer to the one the Framers of the U.S. Constitution laid out 200-plus years ago in Philadelphia…

But is this what Americans want? Do we really want a president who gives it to us straight? Carter did, in his brutal-truth “malaise” speech, and look what happened to him. And do we really want smaller government and the increased personal responsibility that comes with it?

Granted, I think these are things we should want, and so do a lot of politicos and pundits far smarter, more important and more influential than me. But that’s irrelevant. Judging by poll results and past voting histories, Americans of neither dominant political party really want smaller, less invasive government. By all indications, what the vast majority of people seem to want is bigger and more powerful government — but only if it serves their party’s agenda at the expense of their political adversaries. For examples:

From what I gather, most voters on the right couldn’t care less about compromising Constitutional safeguards on personal privacy, blurring the line between church and state, and eradicating the freedom to choose who we marry, when we have our kids and how we end our bed-ridden lives. They’re also square with granting more power to the police and FBI to watch us 24/7 and enacting a strong-arm foreign policy — as long as all of this results in what they perceive as a safer, more secure nation of higher (translation: Christian) morality…

Conversely, many on the left seem not to care if certain Constitutionally guaranteed rights (e.g.: gun rights) fall by the wayside, if agents of the government pass judgment on matters of parenting and the family, or if arbitrary Federal mandates reduce our freedom to choose how we live, what vehicles we drive, what we put into our bodies, and what we do with our own property. They also seem perfectly cool with anyone who can physically get inside the country gaining unlimited access to the public teat — as long as all of this stuff results in what they perceive as a state with a more equitable (translation: Socialist) distribution of wealth and opportunity…

All of these ends, right or left (and right or wrong), require bigger, more invasive, more costly or more oppressive government. And Republicans and Democrats who vote seem to cast their ballots for it every time. So again, the main question about Ron Paul isn’t whether we can trust him, but this: Is America ready for him?

Will we tolerate a president who reduces the scope and reach of government — if it means he eliminates some of our own pet causes in the process?

Will we accept a nation in which we’re more fully accountable for ourselves and our families — or have we grown too accustomed to the guardrails and safety nets Big Brother puts in place to protect us from our freedom?

Will we have the discipline to use the tax dollars we’ll save with smaller government to look after our own retirement finances — or will we spend the extra cash like drunken, uh, senators?

Will we embrace a downsized bureaucracy if it means fewer cushy state and federal government jobs — and a private sector workforce that’s all of a sudden flooded with incompetent boobs who are used to collecting tax-funded paychecks for doing basically no work?

Under a purist president like Ron Paul, this is the kind of stuff that would happen. In true Fawkes-esque fashion, Paul would attempt to explode into splinters (figuratively, of course) the bloated system we’ve built here in America. He’d attempt to dismantle, reform, cut, shrink or outright eliminate whole agencies of the government; he’s already said he’d abolish the IRS, the Department of Education and much more if he had the power to do it…

Again, I’m not saying this would be a bad thing. In my opinion, the presidency of a person like Ron Paul may be the only hope of restoring America to the greatness our founders envisioned. I’m only wondering if anyone else in power from either party would allow it — or if the mainstream media would get behind it.

I’m betting not. The brutal truth is that we may be too far-gone to embrace a candidate like Ron Paul. He may be sincere, but he may also be jousting at windmills in the current American political climate…

“The natural progress of things is for government to gain ground and for liberty to yield.”

— Jefferson again

Let’s consider this for a minute. If Paul gets elected, every time he gets his way about anything, a bunch of career politicians and bureaucrats who currently have power will lose it, regardless of which side of the aisle they’re sitting on. That’d be an inevitable fact under any president whose goal is to shrink and contain government…

The hen-ish and clucking, education-meddling, tax-raising, welfare-doling, illegal-hugging and militant environmental contingents on the left would find themselves cut off at the knees by a president who can’t be bought by a sea of tax money he could use for his own agenda — or the promise of votes from millions of overnight “citizens.” That’s because he likely wouldn’t have much of an agenda except the abolition of existing programs and pork, and probably wouldn’t much care about serving a second term.

On the flipside, the goals of hawkish, spread-democracy-at-all-costs (code for “kill non-Christian infidels”), bedroom-meddling, surveillance-peddling, isolationist, and militantly anti-immigration factions of the right would find their agenda mercilessly thwarted by a president they can’t literally put the fear of God into. Many of their pet causes would be squarely in the crosshairs of a president whose sole agenda isn’t his own party’s power, but a return to Constitutional fundamentals.

So, given that all of this is the case, how would a guy like Ron Paul ever be able to garner either party’s nomination — no matter how much 11th hour cash he raises or how much support he may have from the public?

In other words: Is either party (in Paul’s case, the GOP) willing to put someone in office that’s going to attempt to render large numbers of their own kind obsolete, superfluous or illegal?

I don’t think so. They should, but they won’t.

“…I believe the very heart and soul of conservatism is libertarianism.”

— Ronald Reagan, 1975, Reason magazine

Let’s also consider what would actually have to happen in order for the libertarian-leaning Republican Ron Paul to be elected president — assuming for a moment that he were somehow able to secure the GOP nomination and raise enough money to mount a credible challenge.

First, he’d have to get a huge number of praise-the-Lord-and-pass-the-ammunition Republicans to vote against their own Iraq war stance, or else corral the votes of a huge number of moderate anti-war Democrats to make up the deficit. Would Pauls’s anti-war message attract more moderate donkeys than it alienates conservative elephants?

Who can say? What can probably be safely said is that Paul’s staunchly pro-life stance would likely give Democrats inclined to vote for him a moment of pause…

But would this neocon-friendly abortion stance be enough for far-right Republicans (who vote in huge numbers, by the way) to overlook Paul’s determination to end the war in Iraq — an issue a lot of hard-core Christians must surely perceive as “God’s will” being done with American lead?

Complex questions, all.

None of it really matters, though, because the one thing a man like Ron Paul needs more desperately than anything else in order to ascend to the presidency is the one thing he’ll never get: Massive exposure and support in the media.

The only way Ron Paul can get elected is if he can get his message out — because that message IS a persuasive one. It resonates with Americans of many different stripes. More than perhaps any other presidential candidate in recent memory, Paul’s obvious sincerity, selflessness, intelligence and focus on returning America to its own Constitution may indeed be enough to sway rank and file voters into casting a ballot against one or more facets of their core belief structure.

But that message will NEVER get out in force (and it isn’t) through the typical channels.

Think about it. Paul is the Democrats’ worst nightmare — a small-government, pro-gun, free-market loving, pro-life opposition candidate who’s threatening to scoop up and claim as his own the only issue they’re firmly in line with the bulk of the American public on: The Iraq war.

This means that Paul is ALSO the mainstream media’s worst nightmare. You can argue it until the cows come home, but earnest study and plain old common sense show that the bulk of the do-gooder mainstream media is as bent to the big-government left as any of the candidates — more so, since they don’t have to compromise on their message in order to corral votes.

What about FOX News? True, they may not be as left-leaning as the others, but they don’t seem to be doing Ron Paul any favors. Quite the contrary, it seems. Some online sources have argued that FOX is desperate to oust Paul from the race in favor of more “conservative” (ironic, since Paul is by far the best example of a classical conservative) candidates like Romney, Huckabee and Thompson. I’m inclined to agree.

Indeed, FOX’s “You Decide 2008” Web site posts only five news-line items for Paul, the last one being from back in October. No mention is made of his Guy Fawkes Day fundraising record. Conversely, GOP candidates Romney, Huckabee, Thompson, Richardson and even the relatively liberal Rudy Guiliani and John McCain have between 15 and 20 posts each, with most of them featuring more recent updates, some from as recently as this morning.

So who in the mainstream media is going to help Ron Paul get his message out? Aside from a sizeable presence on the Internet, a fairly visible (yet shoestring-budget-looking) grassroots effort and a precious few debate appearances, how are rank and file voters going to be able to hear how much sense Paul is making?

The key to this is in the debates, which unfortunately, not a lot of people are watching. But if they were, they’d see something pretty interesting…

First, a preface: Poll results are a tricky thing, and in my experience, the reporting of poll results seems far from objective — or even complete. Yet according to a many sources online, Ron Paul is consistently declared by multiple polls as either the outright winner or among the leaders in the nine out of 10 GOP presidential debates he has participated in thus far.

So why aren’t we seeing and hearing more Ron Paul talking points and sound bites in the mainstream media?

This is all especially interesting when one remembers how much media exposure a far less appealing, credible or qualified H. Ross Perot got during the 1992 presidential campaign. Many think this is because everyone knew Perot’s presence would siphon more votes from George H.W. Bush’s re-election effort than it would from Bill Clinton’s election campaign. But anti-war Ron Paul is likely to pull votes from both sides…

And so he must be stopped.

What’s even more interesting is that despite being under heavy fire from all political sides, having a funding war chest that’s dwarfed by the front-running candidates (perhaps not for long, though), and enduring a near-blackout in the mainstream media, Ron Paul’s latest CNN opinion poll numbers put him sixth among Republican candidates at 5% of the vote, were the election held today.

This isn’t bad for this stage in the game. However, the real support numbers may be significantly higher than this. According to USAElectionPolls.com, data from a large number of “straw polls” nationwide put Ron Paul’s real-world support at between 15-20%…

Again, why aren’t we hearing about any of this from Big News?

It’s because Ron Paul is dangerous to the system that butters everyone’s bread.

“Remember, remember, the fifth of November, the gunpowder, treason and plot…”

— Guy Fawkes Rhyme, author unknown

People who care (not nearly enough of us do in America) can trumpet all day long about Ron Paul’s 10 consecutive terms as a Texas Congressman, his squeaky-clean reputation, his true-to-the-Constitution voting record, his common-sense platform, his consistently dominating performance in debates, and on and on and on. But unless he wins enough states in the primaries to get the GOP nomination, it’s all nothing more than a footnote. He’ll be an asterisk in an otherwise status-quo election cycle.

I see this as a defining moment for the Republican Party, perhaps more so than any other in my lifetime. If Ron Paul succeeds in staying in the mix despite the best efforts of BOTH political parties and the media, this election could be the first in years to truly revolve around issues and a core governing philosophy instead of money, pandering and back-room political dealings.

It remains to be seen whether the GOP far-right will vote en masse solely for whoever they think will put God first (the jury’s out on who this is, but Romney’s looking like the Chosen One) and kick righteous ass on the non-Christian world…

It remains to be seen whether the pro-war faction of the party can be persuaded that their votes thus far have been in error, and that a vote for Paul isn’t necessarily a vote for a weaker, less secure America (it may be — but only time will tell)…

And it remains to be seen whether Republicans REALLY WANT smaller, less invasive government, lower taxes and more freedom — even if it means more discipline, fewer jobs and pork-barrel safety nets, less ligature between church and state, and greater personal responsibility…

The bottom line is this: Starting right now, with Ron Paul’s some-would-say-quixotic candidacy, the GOP has its best chance in decades to decide who it is, and refocus on what’s supposed to be their core philosophy: Smaller government and a more strict interpretation of the Constitution.

Does the GOP have the guts to finally walk like it talks? It’s worth my vote to find out, I think.

I guess we’ll have our answer in the wee smalls of next November 5.

Waiting and debating,

Jim Amrhein
Freedoms Editor, Whiskey & Gunpowder

Ron Quixote? was originally featured on Whiskey and Gunpowder

He’s made a splash in the first three Republican debates, which he’s parlayed into a booming online presence, along with interviews on The Daily Show and The Colbert Report. He’s made inroads in more traditional media, being interviewed by each of the national cable news channels and meriting a Page 1 profile in The Washington Post. He’s generated tremendous buzz as the most principled opponent of the Iraq war among both of the major parties’ candidates.

But soon, that alone won’t be enough. It’s time to move to the proverbial “next level.” It’s time he starts effectively selling the message of liberty to people who are unfamiliar with it. Paul had a unique opportunity to do so last week on The Colbert Report, and he missed it.

Credit Where Credit’s Due

Let me give Paul credit. He has climbed a steep learning curve with the art of extemporaneous speaking in a remarkably short amount of time. During the first debate, he made several cringe-worthy statements, moments when I wished with all my might that he’d made his point a little differently, less awkwardly. It’s one thing to deliver a prepared speech on the floor of the House, something Paul has done very well for decades. It’s another thing to speak off the cuff on a regular basis, and it showed in Paul’s early performances.

Granted, the current president is not, shall we say, the most able ad-libber, but by God, when someone actually gets the rare chance to express the principles of liberty on national TV, you expect him to articulate them better than you would yourself.

Or at least I do. Perhaps I have higher standards than most, after spending a career in journalism, where I’ve become accustomed to silver-tongued, media-savvy politicians blowing smoke with grace and aplomb. I endured a 20-year span of spin that culminated in watching the meteoric rise of that consummate BS artist Barack Obama while working at a TV station in his home base of Chicago.

But Paul’s been a quick study. With each debate and each interview, he’s become more comfortable in his own skin, and by the time of the third GOP debate, I found myself cheering for him probably three times as often as he made me wince.

Which brings me to the Colbert appearance. Now, don’t get me wrong. His performance was very strong. Many a lesser politician has been tripped up by Colbert and made to look like a fool. Paul thrust and parried with him as well as anyone. When Colbert, in his right-wing persona, told Paul, “I’d rather be alive than free and dead,” Paul had a terrific comeback: “I’d rather be free and alive!” That really hit home with an audience that feels the Bill of Rights has been all but repealed by the current administration, and that senses intuitively that liberty need not be exchanged for security. Paul validated that intuition and brought it to a conscious level. Fabulous.

Turning the Curious Into Converts

The missed opportunity came at the end of the interview. Colbert rattled off the names of about a dozen government agencies and asked Paul to raise his hand each time if he wants to abolish them. Paul obliged each and every time. Which is fine as far as it goes. But he missed a chance to turn the curious into converts. I suspect the reaction from many viewers was similar to that of the leftist blogger Manila Ryce:

“[Stephen Colbert] did not let Paul get away as easily as fellow liberals [Jon] Stewart and [Bill] Maher have. Instead, he pointed out the differences between Paul’s far-right ideology and that held by the left. Stephen’s audience obviously wanted to cheer for Paul, but seemed thoroughly confused after they realized that the enemy of your enemy isn’t always your friend.”

Colbert’s list started with the Department of Education. Paul could have raised his hand, stopped him right there, and said: “Yes, I want to abolish the Department of Education. I know that sounds pretty radical, but let me tell you why.”

That last sentence is crucial to the success of Paul’s campaign going forward. He can’t say it often enough to preface unorthodox views that will be unfamiliar to liberals — and for that matter, many younger conservatives with little memory of Ronald Reagan’s small-government rhetoric. Without compromising his principles (as I’m sure he never would), Paul must nonetheless acknowledge that his views might make people a bit uncomfortable; that basic expression of empathy alone will make them much more receptive to what he has to say.

And what he could have proceeded to say was something like this:

“You know, there was once a time when most Republicans wanted to abolish the Department of Education. But a funny thing happened. When Republicans won political power, they realized, ‘Hey, we can use this Department of Education to push our own agenda on the rest of the country.’ And that’s why you have these endless fights now over how our kids are supposed to be educated, Republicans and Democrats each wanting to impose a one-size-fits-all solution on the entire nation. It’s crazy. If they want to teach creationism in Oklahoma, fine, let them. If they want to teach condom use in New York City, that’s fine too. Why should this all be imposed from Washington, D.C.? You know, there isn’t one word in the Constitution about education, and that’s because the Founders knew that education was something best left to states and communities and parents and teachers. But what do we have now? We have this crazy No Child Left Behind law where every kid in the nation is getting drilled in how to pass standardized tests and they’re not actually learning anything. And don’t forget, that law is the brainchild of Ted Kennedy every bit as much as it is of George W. Bush.”

At that point, the allotted time for the interview would have been over, and Paul would have given Colbert’s audience an awful lot to stop and think about. This message of devolution (or if you prefer, states’ rights) is central to Paul’s brand of libertarianism, and it could really resonate with liberals who feel as if Christian fundamentalists are trying to impose Taliban-like rule nationwide and conservatives who still retain a memory, however deeply suppressed, of a time not very long ago when they had an innate suspicion of centralized power in Washington, D.C.

A Nation Divided

The fixation on a one-size-fits-all template has seized hold of both liberals and conservatives in nearly every matter of “public policy,” and the resulting free-for-all has left the America of 2007 a deeply divided country. The divisions began with the ascendance of political Christianity in the ’80s, gathered pace during Clinton’s polarizing presidency in the ’90s, reached a crescendo with the 2000 Florida recount, took a breather after Sept. 11, and have gathered pace again since the spring of 2004, when the outrages at Abu Ghraib prison and the slaughter of the four U.S. contractors in Fallujah began turning large numbers of Americans against the Iraq war.

Amid all these divisions, Ron Paul could bring a message of healing — not a message of unity: The country is beyond unity at this stage of its history — and no amount of Barack Obama platitudes will change that, but a message of healing nonetheless — a message that it’s OK for diverse peoples and communities to have different values, to make different choices, to live and let live.

Chances are that’s what America is going to look like in a couple of decades anyway. If nascent secession movements in Vermont, Hawaii, and elsewhere don’t come to fruition, those states and all the rest will nonetheless have much more autonomy as, in time, power devolves from Washington. In all likelihood, the process will come about acrimoniously, perhaps even violently, as competing factions fight each other to exhaustion and our bloated domestic bureaucracy and overseas empire collapse under their own weight. But what if the process came about peacefully, as the factions come to realize as the Founders did that there’s relatively little to fight about when political power is decentralized? Ron Paul can help to bring about that realization, start changing the national dialogue and at the same time, build additional support for his presidential campaign from across the political spectrum.

Regards,
Dave Gonigam

June 21, 2007

Ron Paul’s Missed Opportunity was originally featured on Whiskey and Gunpowder

LoCascio makes a compelling case that although it’s possible to maintain the integrity of money in a fiat system, historically only the discipline of a gold standard has succeeded in preventing massive abuses by the monetary elite.

Of course, the above should be painfully obvious to everyone by now, but unfortunately it is not. I offer as proof Congressman Ron Paul’s (R-Texas) final debate with Greenspan before the House Financial Affairs Committee, July 20, 2005:

Paul: “To me, this system that we have today is a convenient way to default on our debt – to liquidate our debt after the inflationary scheme.

“Even you, in the 1960s, described the paper system as a scheme for the confiscation of wealth.

“And in many ways, I think this is exactly what has happened. We have learned to adapt to deficit financing. But in many ways, the total debt is not that bad because it goes down in real terms.

“As bad as it is, in real terms, it’s not nearly as high.

“But since we went on a total paper standard in 1971, we have increased our money supply essentially 12-fold. Debt in this country, federal debt, has gone up 19-fold – but that is in nominal dollars, not in real dollars.

“So my question is this: Is it not true that the paper system that we work with today is actually a scheme to default on our debt? And is it not true that, for this reason, that’s a good argument for people not – eventually, at some day – wanting to buy Treasury bills, because they will be paid back with cheaper dollars?

“At the same time, it hurts the people who are retired and put their money in savings.

“And aligned with this question, I would like to ask something to dealing exactly with gold — is that: If paper money – today it seems to be working rather well – but if the paper system doesn’t work, when will the time come? What will the signs be that we should reconsider gold?

“Even in 1981, when you came before the Gold Commission, people were frightened about what was happening – and that’s not too many years ago. And you testified that it might not be a bad idea to back our government bonds with gold in order to bring down interest rates.

“So what are the conditions that might exist for the central bankers of the world to reconsider gold?

“We do know that they haven’t given up on gold. They haven’t gotten rid of their gold. They’re holding it there for some reason.

“So what’s the purpose of the gold if it isn’t with the idea that some day they might need it? They don’t hold lead or pork bellies. They hold gold.

“So what are the conditions that you might anticipate when the world may reconsider gold?”

“And the answer is: I don’t think so, because we’re acting as though we were there…

“So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we’ve behaved as though there are, indeed, real reserves underneath the system.”
As for me, I cannot believe Paul let Greenspan get away with that response so easily. Perhaps his time was up or perhaps he was too staggered by the silliness of Greenspan’s reply to fire off another round of questions.

No matter how one slices it, money supply going up 12-fold and debt 19-fold since Nixon defaulted on the gold standard is hardly acting as if we were still on the gold standard. Indeed, what little discipline we once had was thrown out the window long ago and has not been seen since.

LoCascio writes:

With debt up 19-fold in conjunction with Greenspan’s latest and all-time biggest bubble, otherwise known as housing, exactly where do we go from here? Given the illiquidity of housing, I am inclined to believe housing is the “bubble of last resort.” With global wage arbitrage, outsourcing, and rampant speculation in housing and the credit markets, this is the end of the line. There are no bigger bubbles to be blown.

The picture in my mind at this point is that of Greenspan playing The Sorcerer’s Apprentice. (If you have not yet seen Fantasia, I highly recommend doing so.)

At any rate, if you can relate to the scene in Fantasia where buckets of water were splashing around everywhere as the apprentice unleashed a “nightmare of liquidity,” then you have the right image in your head.

OK Mish, where to from here?

Vincent Locascio: The Wisdom of Ludwig von Mises

“The boom squanders through malinvestment scarce factors of production and reduces the stock available through overconsumption; its alleged blessings are paid for by impoverishment.”

“He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse. In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils which inflation and credit expansion have brought about.”

“Credit expansion is the governments’ foremost tool in their struggle against the market economy. In their hands, it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.”

I had to laugh when I saw that Von Mises quote referring to “the magic wand.” Indeed, history will not be so kind to Greenspan. He will be not be remembered as “The Maestro,” but as “The Sorcerer’s Apprentice,” looking for the easy way out of every problem, to the point of his undoing.

Back to the book… LoCascio explains:

Obviously, LoCascio is an optimist. I think it is far too late to prevent a calamity that wipes out the malinvestments and excesses of a 20-year boom that were built upon bubble after bubble of reckless credit expansion.

Nonetheless, LoCascio attempts to address the challenge of creating a “moral monetary system.” He argues that the root of the current problem is that inflation is perverse because increases in the money supply are distributed unevenly and unfairly. Any solution must remove the ability of the Fed to create and distribute money. He also mentions two related problems that must be rectified: First, our monetary unit must be defined; second, money needs to be distinguished from credit.

I will save a discussion of money supply for a later date, but LoCascio, as others before him, have pointed out numerous flaws with current measures such as M1, M2, M3, MZM, etc. The preceding measures blur credit with money in varying degrees and have other flaws as well that will be a subject for further discussion at a later date. For now, let’s just say that credit is so often blurred with money in our current system that it is hard not to be confused.

The heart of his proposal is to use money that has 100% backing with no more fractional reserves on demand deposits (checking accounts). Thus, money cannot be at one’s disposal in a checking account while simultaneously being lent to someone else. “Money is only money if it is available to the owner on demand at face value.” Finally, money would once again be backed by gold.

To date, no one has put together a way to get from here to there. LoCascio attempts to do just that with an eight-step program in which:

1.) Credit is distinguished from money.

2.) A preliminary money supply figure, based on step 1, is determined and published.

3.) A day of reckoning (DOR) will be announced on which money supply would be “corrected.”

4.) Fractional reserve banks will cease to exist.

5.) Time deposits will be kept distinct from demand deposits.

6.) Leading up to the DOR, money totals and credit totals will be fine-tuned.

7.) On the DOR, existing Federal Reserve notes (dollars) will be replaced with Treasury certificates (TC) that are payable on demand in gold.

8.) Taking the number of ounces of gold held by the Treasury and dividing that by the TCs, one gets a price value for gold, and notes are redeemable at that price. A dollar once again has a value associated with it.

One such difficulty that LoCascio did not deeply delve into is the global problem required in getting all the central bankers to agree to carry out such a plan simultaneously. Also, given our current trade imbalances, there would be huge pains for the United States to go back to an honest system right now.

While I think LoCascio underestimates the theoretical difficulties of such an endeavor, it is very clear that the current system is broken beyond repair. In that regard, I am more of an optimist than LoCascio. Something will have to replace Bretton Woods II, given that the current system is clearly not sustainable. Why not use the ideas outlined in his book as a starting point?

Like it or not, the United States will have to start thinking about long-term consequences, or the markets will eventually force the issue. My guess by now should be obvious. Time will be ripe for a “fresh honest start,” after the repudiation of Greenspan’s wizardry comes via an enormous deflationary collapse. Unfortunately, that final collapse may be years away if we follow the Japanese model.

Regardless of whether or not one thinks it is either desirable or even possible to return to a gold standard as described, the book is a very good read on the problems of the current fiat system, in which money, backed by nothing, can be created at will by the elite for the sole benefit of the elite.

Regards,
Mike “Mish” Shedlock
August 16, 2005

Vincent Locascio: Gold’s Honest Discipline was originally featured on Whiskey and Gunpowder