A reality based commencement talk

Rob Lazebnick is a writer on the Simpsons.  Spoofing the typical graduation commencement speech, delivered by the usual "choice" of speakers, celebrities like Oprah (Harvard) and politicians like Obama (Morehouse), Lazebnik imagines how he would talk to graduates in 2013.  This dose of realty would go over like a lead balloon, however it would also be a lot closer to reality than the usual pablum served up on the occasions.

A Message for the Class of 2013

By ROB LAZEBNIK

Thank you, President and Trustees.

I have to confess that coming here to speak today raised a question in my mind: Now that high-school students are so accomplished and work so hard, would I even be admitted today to this eminent liberal arts school, from which I graduated 25 years ago? I was curious enough about this that I contacted an admissions officer here. I asked her to dig up my old application and give me a quick opinion.

This turned out to be a grave mistake. Not only was her answer "absolutely not," but a few days later I received a letter informing me that I had been retroactively denied admission to my own alma mater. To make matters worse, they culled through the entire cabinet of applications from my year and decided to revoke admission for 73% of my classmates.

If that includes any parents here today, I'm really sorry. I've printed out the non-admit list, and after my speech I'll nail it to the door of our 300-year-old memorial church, which has recently been transformed into the student-run coffee shop Jitters and Beans.

If it happens that you're on the list, you will have the opportunity to reapply, so you'll probably want to work on bulking up your application right away. A good start would be to show up tomorrow at 8 a.m. for dorm cleaning crew. And maybe this summer you'll want to get an unpaid internship at the charity that you pretend to care about the most.

My own sudden lack of credentials caused me to reflect on the fact that I—and apparently most of your parents—couldn't hold a candle to you when we were applying to college. So I want to pay tribute to the spectacular collection of new graduates sitting here today.

In high school you were National Merit Scholars, student council presidents and captains of your fencing teams. You took dozens of practice SATs, practiced viola for thousands of hours (violinists are a dime a dozen) and French-braided the hair of homeless veterans.

You masterfully tied together a set of emotional symptoms that looked enough like attention deficit disorder to buy you extra time on all your finals and standardized tests. Plus, you got to take the exams in special quiet rooms, where a test facilitator would sharpen the pencils outside, because the grinding sound triggered your acute sensory overload. (Which somehow didn't preclude your part-time summer job at Blenders Juicery.)

You hired private college advisers to read your essays and hone your interview skills. Just think back to those valuable sessions where you learned to practically leap out of the chair talking about your passion for writing one-act plays in Cherokee, or how your heart raced that summer on the Mongolian steppes when you first spotted an ovoo monitor lizard, once thought to be extinct.

LuciWhat should new graduates do now?

And you learned to deftly walk the college interviewer through your many achievements while still showing carefully modulated self-effacement: "Yes, I helped design the CO2 scrubber that will save humanity from global warming, but it was totally a team effort."

Then you arrived at this great institution, where you dabbled in a couple of your passions, only to quit them after freshman year because you found new ones: playing hundreds of rounds of "Settlers of Catan" and having long debates into the night over which Stark son is hotter on "Game of Thrones."

The keys of your $20,000 Powell flute became rusted shut after it was put to use as a bong for the last two years. Your Wilson Pro H22 tennis racquet quickly became a drying rack for your underwear once you found out that the college tennis team was filled with power-hitting recruits from Estonia and the Ukraine who could knock a flash drive off the top of your head with a backhand.

So you relaxed into college life—a well-deserved break after the exhausting race to get here. You've spent four years percolating in a warm stew of beer, gender studies and online pornography—which led to the subject of your senior thesis, "Jacobean Dramatic Tropes in Modern 'Massage Surprise' Videos."

Fortunately, your parents, who had become so accustomed to guiding you through the myriad decisions you had to make to get into this place, have been able to stay in constant smartphone contact. You've been able to call them when you were at the salad bar and couldn't remember which salad dressing you like. You were able to email them your sociology paper—and luckily, Dad's colleague Elliot at the firm had an M.A. in sociology and was able to make a few helpful suggestions, such as the central argument, supporting evidence and the pull-it-all-together conclusion.

Mostly, though, you've spent your last four years being ... well, at home.

When I said goodbye to my son at freshman drop-off day, I was thrown into a black despair over how much I'd miss him. But as it turned out, he had so few weeks of actually being at college that I never had time to miss him. Misty-eyed, when the rest of the family was having dinner, I'd say, "I wonder what Johnny's doing right now," and then I'd hear him call from the family room, "I'm watching 'Arrested Development.'"

But let's not understate the big achievements you've racked up during the 70 or so days you've actually spent on campus. The first, and perhaps finest accomplishment, is having persuaded your parents to spend hundreds of thousands of dollars to extend your childhood for four years.

Let's also not forget how hard you've worked to find something to protest against. In my day, it was apartheid in South Africa. In yours, it's championing people who wanted the God-given right to use a gender-neutral bathroom. Thrillingly, you petitioned the President and Trustees and won: Now guys can make both bathrooms on every dorm floor equally disgusting.

But there is another huge achievement that your generation will take away from college. A great stroke of genius that you have collectively devised, marshaling all of the intelligence and drive that got you admitted here in the first place: the hookup culture.

You've had vast amounts of sex—weekends upon weekends of bed-swapping that began on Thursday nights. There is not a single bed, couch, lab counter, library desk, football end zone, university founder's statue, Henry Moore sculpture or monkey research cage on top of which you, the outstanding class of 2013, haven't copulated.

And you young straight men, in particular, have had amazing advantages. This school, like every other liberal arts institution today, is 60% women. Factor in a gay population of 8% to 10%, and the odds were massively, groaningly in your favor.

In my day, the male/female ratio was 50-50. Sadly, it was decades before women saw "The Social Network" and realized that by inviting the awkward kid next to them at the cafeteria's gluten-free station to bed, they could get in on the ground floor of a Zuckerberg or even a Winklevoss.

We didn't have a hookup culture. We had a dating culture. And even that was a culture I was on the periphery of, much like Jane Goodall watching chimpanzees through binoculars—hopeful that the chimps would invite her over but more terrified that they would rip her face off.

So I stand here, looking at this beautiful, 60% female crowd, and wonder what the hookup culture would have meant to me if I'd been in school today. I suspect it would have given me many more opportunities to be the only person not having sex.

I want all of you to take a moment and honor yourselves for this signature sexual revolution. Take heart in the idea that no matter how hard things get, no matter what failures you endure, you will always have the memories of the night when you and a drunk sophomore did it on top of two passed-out lacrosse players.

Unfortunately, those are memories you'll have to cling to a lot, because here is your dilemma: You, the best-prepared college generation ever, have just spent four of the most formative years of your lives in an environment that's the exact opposite of the real world. Every room you've walked into here was filled with ambitious, fascinating people who shared your interests in which pizza places took online orders and what your zombie kill count was in "Call of Duty: Black Ops II."

Your life has been a nonstop ride of work, study and fun. Now, though, you're about to walk out of those iron gates and … what? You're headed into the most challenging labor market of the last 80 years.

Because you're driven and have been told over and over in speeches like this one to follow your passion, you're going to write eye-catching job query letters and send them with bulging resumes to the heads of Greenpeace, the Aspen Music Festival, ESPN, the Clinton Global Initiative, "The Colbert Report" and Tesla Motors TSLA -5.29% .

That will take three days. Then you're going to have months and possibly years of free time ahead of you. Free time that you won't know how to fill, because you've never really had any before.

Here's where I'd like to give you some concrete suggestions. One: Write a movie or graphic novel (six months, minimum) and then put it on Kickstarter, asking for $25,000 to put it into production. That will give you another t30 days to track the progress of your contributions from friends and relatives, who secretly hope your goal won't be reached so they won't have to fork over the money, read your book or see your film.

Idea two: On the social media app Foursquare, a person who spends the most time in a venue becomes its "mayor." Achieve this distinction at your local Starbucks, SBUX +0.51% beating out the guy who's constantly on his cellphone trying to sell medical office furniture and the woman in the corner who makes doll house furniture out of wooden coffee stirrers.

Idea three: Constantly monitor news sites for breaking stories and then try to be the first to tweet an edgy joke about what's happening. Speed is of the essence here, because within minutes others will carpet bomb the same territory with comedy, but if you're first out of the gate, you'll get the retweets. This won't land you a job or get you paid, but you can't underestimate bragging rights at friends' engagement parties.

A final idea is to go to the least expensive graduate school you can find and just hunker down. You'll want to look as young as possible when actual good jobs come in three to seven years and you're competing against new grads, so try not to get any wrinkles—stay out of the sun and don't smoke or react facially to anything, even if the Cubs win the World Series or if they find out that Amelia Earhart ate her navigator Fred Noonan.

I know that I haven't given you the keys to happiness in this speech today, but what more can you expect from someone who's just lost his B.A.? I believe that because most commencement speakers have been so successful, they think they can identify the ingredients that led them to success. But they tend to discount the major role that simple good fortune and timing played in their prosperity. So I advise you to ignore all the clichés of the typical commencement speech and do what your generation does best: get lucky.

A version of this article appeared June 1, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: A Message for the Class of 2013.

The Gibson guitar story in retrospect

Of all the stories of corruption, abuse of power, and serial criminal behavior on the part of the Obama administration, the one about the Gibson Guitar company stands out.  It stands out largely because the facts speak for themselves and are articulated in this article from the Washington Examiner newspaper.  It demonstrates the lengths to which Obama, Holder and the rest are willing to go to in order to intimidate and suppress those with different points of view.  This is the 21st century iteration of the Nazi movement that launched WWII.  Nice.

Gibson Guitar and the Politics of Persecution

The highly publicized 2011 raid by FBI agents of a plant owned by Gibson Guitar is beginning to look more and more like another outgrowth of the Obama administration’s crackdown on citizens considered to be political “enemies.” By now it is well known that the Obama IRS has been persecuting individuals affiliated with the Tea Party and even religious organizations through audits, federal agency investigations and the denial of the right to form non-profit groups. The Obama Justice Department, too, has engaged in unprecedented seizing of communication records of journalists, including Fox News’s James Rosen, whom the administration has threatened with charges of “espionage.” With these details now made public, Gibson Guitar has good reason to believe the shocking raid of its facilities, which cost the company altogether millions of dollars, was also a warning to its Republican-supporting CEO Henry Juszkiewicz.

On August 24, 2011, armed FBI agents in SWAT gear executed a warrant for the seizure of wood at Gibson Guitar facilities. At the time, the raid appeared peculiar because of the excessive forced used over charges of regulatory violations. The premise of the raid was an obscure 100-year-old law known as the Lacey Act. On the basis of this act, the Feds were able to storm the facilities, claiming that Gibson’s had broken foreign (not American) law in its procurement of the wood, even though the government produced no evidence of the crime at the time and no evidence has since emerged that the material was illegally obtained. Juszkiewicz was only told at the time that the Gibson supply chain had a “risk” of including illicit wood. This was in fact the only infraction the company was penalized for after it was forced to settle its case to avoid costly litigation.

Suspicions of political motivations behind the attack were quickly aroused. Gibson Guitars CEO Henry E. Juszkiewicz is a known supporter of conservative causes and political candidates. The Examiner, citing Open Secrets, reports that Juszkiewicz had contributed $2000 to Rep. Marsha Blackburn (R-TN07) last year, as well as $1500 to Sen. Lamar Alexander (R-TN). Juszkiewicz also has donated $10,000 to the Consumer Electronics Association, a PAC that contributed $92.5k to Republican candidates last year, as opposed to $72k to Democrats.

Notably, one of Gibson’s biggest competitors, C.F. Martin & Co., reportedly uses the same type of wood seized from Gibson’s, but did not face any kind of interference from the federal government. The Examiner reports that Chris Martin IV, CEO of C.F. Martin & Co., is a well-known Democratic fundraiser. The Examiner describes Martin as “a long-time Democratic supporter, with $35,400 in contributions to Democratic candidates and the DNC over the past couple of election cycles.” Furthermore, no other companies known to use the wood in question, such as furniture manufacturers, have reported similar prosecution from the federal government, though the wood is distributed widely throughout the world. As Juszkiewicz told radio host Hugh Hewitt, “Virtually every other guitar company uses this wood and this wood is used prominently by furniture and architectural industries, and to my knowledge none of them have been shut down or treated in this fashion.”

Gibson Guitar lost enormous assets as a result of the government’s manhandling. Judge Andrew Napolitano, a Fox News Channel legal analyst, described the harrowing nature of the raid and its incredible cost.

These guys came dressed in SWAT gear with machine guns pointed at people. They took dozens and dozens of people out into the parking lot. They then seized what they said was the illegal wood. They effectively shut down the business for a month. Gibson’s legal bills are about $2.5 million and they haven’t even gotten back the wood that was seized from them.

As with the IRS scandal today, the so-called mainstream media attempted to downplay the significance of the Gibson raid, casting it as a political football for Republicans. Politico reported at the time:

[The] federal raids on the company that makes Gibson electric guitars were a gift to Republicans who have spent years railing about more obscure issues like boiler MACT regulations and particulate emissions standards.

Here, at last, was a controversy the average person could grasp: Overreaching regulators were out to kill rock ‘n’ roll.

Still, House Republicans are having some trouble getting the issue to gain traction on the Hill.

However, with both the Attorney General’s office and the IRS now tied directly to scandals in which there is strong evidence that each of the agencies misused and abused their powers in order to target political enemies of the President, the Gibson Guitar case can hardly be dismissed as regulatory overreach. In hindsight, it was an ominous foreshadowing of the explosion of misdeeds we are witnessing today.

Thanks to the dedication of Congressman Darrell Issa, the investigation into the IRS has been moving forward.  The House Committee on Oversight and Government Reform, which Issa chairs, has scheduled more hearings into the IRS scandal for later in the week. Head of the IRS’s non-profit division, Lois Lerner, whose Fifth Amendment rights have come into question after she chose to emphatically profess her innocence shortly before refusing to testify on the matter, is listed as one of the scheduled speakers. Meanwhile, Attorney General Holder, who has already been cited in contempt of Congress, is being investigated forperjury.

Investor’s Business Daily, which renewed interest in the injustice done to Gibson’s with a recent editorial, keenly observes that all of the Obama administration scandals are connected by a common denominator: abuse of power to persecute political adversaries — even if those on Obama’s “enemies list” are ordinary citizens exercising their constitutional rights.

Juszkiewicz’ claim that his company was “inappropriately targeted” is eerily similar to the claims by Tea Party, conservative, pro-life and religious groups that they were targeted by the IRS for special scrutiny because they sought to exercise their First Amendment rights to band together in vocal opposition to the administration’s policies and the out-of-control growth of government and its power.

The Gibson Guitar raid, the IRS intimidation of Tea Party groups and the fraudulently obtained warrant naming Fox News reporter James Rosen as an “aider, abettor, co-conspirator” in stealing government secrets are but a few examples of the abuse of power by the Obama administration to intimidate those on its enemies list.

So far, the administration has dismissed this growing plethora of scandals, claiming ignorance in each case. That claim, as ludicrous as it is, would be equally troubling, even if it were true. The bottom line is that there is a common thread in each of the scandals that have come out over the last few weeks. In nearly all of these cases, there were examples of parts of the Obama administration using the power afforded to them to punish enemies of the administration and subsequently reward its friends. Gibson Guitar was just the canary in the coal mine.

More from David Stockman

You won't find a more succinct explanation of the forces at work that caused the financial meltdown of "07-08.  Understated in this explanation is the destructive role played by democrat (and a few republican) politicians from Bill Clinton, to Andrew Cuomo to Senator Barak Obama.  Nor should the role of the CBC (Congressional Black Caucus) and the corrupt management of the major GSEs involved (Raines, et al) and their enablers in the Congress.  This is probably the worst scandal in our country's history because it effects will be felt for generations to come.

The New Deal Origins of Fannie Mae and the Government-Housing Complex

Fannie Mae is a classic crony capitalist progeny of the New Deal that began life in 1938, quite innocently, as still another ad hoc New Deal program to boost the depression-weakened housing market. It grew into something quite different: a monster that deeply deformed and corrupted the nation’s entire financial system seventy years later.

The policy aim of Fannie Mae was “forcing water to flow uphill” in the residential mortgage market so that low-rate thirty-year home mortgages became available to wage-earning households of modest means. Such mortgages did not then exist for a good reason: they were not economic. No prudent local bank or thrift would take the underwriting risk.

Fannie Mae would thus override the market’s veto by turning local banks and thrifts into government contractors or agents, rather than mortgage debt underwriters. Accordingly, they would be relieved of their aversion to the risk of default loss by means of a Washington-funded “secondary market.” The latter would purchase these commercially unappealing mortgage loans for cash, enabling local bankers to reloan this cash again and again in a government-supported rinse and repeat cycle.

Meanwhile, the default losses that the market refused to underwrite would be shifted to taxpayers, since Fannie Mae’s funding would implicitly depend on the public credit of the United States. The slowly recovering residential housing sector would thus receive the kind of booster shot much favored by the New Dealers.

What Fannie Mae also did, unfortunately, was to start the home mortgage market down a slippery slope. This included separating the loan origination process from the long-term servicing and ownership of the resulting mortgage, in an alleged financing “innovation” that would give rise to predatory mortgage-broker boiler rooms a few generations down the road.

Likewise, it opened the door to the funding of home loans in the global markets for U.S. sovereign debt, rather than out of the savings deposits of local bank customers. This became possible because Fannie Mae took on quasi-sovereign status, meaning that investors were funding the general credit of the United States, not the specific risk of local mortgage borrowers and separate residential markets.

There were several crucial upgrades in ensuing decades to the original New Deal scheme before it reached its stunning dénouement in Washington’s panicky $6 trillion nationalization and bailout in September 2008. Among these milestones were LBJ’s maneuver to put Fannie “off-budget” in 1968 in order to hide its exploding use of Uncle Sam’s credit card.

LBJ’s so-called privatization plan, in turn, paved the way for Fannie to morph into a hybrid entity called a GSE (government-sponsored enterprise) in which ownership was private but its debt issues were implicitly government guaranteed. Politicians and policy makers who inherited FDR’s “anything that works” mantle were pleased to describe the GSEs as creative “public/private partnerships.”

They were no such thing. The GSEs were actually dangerous and unstable freaks of economic nature, hiding behind the deceptive good-housekeeping seal afforded by their New Deal–sanctioned mission to support middle-class housing. This was especially the case after Fannie’s initial public offering and subsequent ability to tap the public capital markets for virtually limitless funds.

Another crucial step was Wall Street’s perfection of the mortgage securitization model. This “innovation” vastly improved Fannie’s ability to sweep up mortgages originated by local bankers on a massive wholesale basis, and then guarantee and package them for distribution into increasingly broad and liquid national and international capital markets. When this was combined with high speed computerized underwriting in the 1990s, disasters like Countrywide Financial became inevitable.

As time passed, the evolution of the Fannie Mae monster only got more fantastical. Thus, the rise of the worldwide T-bill standard generated a nearly inexhaustible appetite among mercantilist central banks for U.S. government or quasi-government GSE paper. These vast monetary roach motels were not exactly honest “markets” for mortgage loans from Cleveland or Fort Myers, but GSEs went into overdrive supplying the unquenchable thirst of foreign central banks for dollar liabilities, especially when heavy currency pegging began after 1994.

Not surprisingly, when Treasury Secretary Hank Paulson’s fabled bazooka failed and Washington had to nationalize the GSEs, foreign central banks and other state institutions owned more than $2 trillion of American home mortgages, including upward of $1 trillion domiciled at the People’s Printing Press of China.

In short, Fannie Mae’s journey started in 1938 with a Washington, D.C., filing cabinet containing a few thousand mortgage notes which had been gussied up and christened as the nation’s “secondary mortgage market.” Yet the progeny of this innocent filing cabinet ended up eighty years later scattered around the globe in the trust accounts of Norwegian fishing villages and as a trillion-dollar stash in the central bank vault of Red China.

In the interim, massive social costs and economic losses built up inside the housing marketplace and became ripe to explode. As detailed more fully in chapter 20, the whole GSE scheme functioned to underprice mortgages, undermine lending standards, over qualify home buyers, fuel greedy broker predation, and fund a speculative climate.

In the process, the principal assets of the American middle class, family residences, were turned into an ATM machine and became the object of frenzied buying, selling, and serial refinancing. Unfortunately, this ruinous journey was far more inexorable than it was merely accidental.

At each step along the way, powerful special interest groups—mortgage bankers, real estate developers, home builders, building material suppliers, Wall Street underwriters, law and title firms, appraisers, and brokers—drove policy toward their own benefit. These changes, elaborations, enlargements, and aggrandizements had a common purpose: namely, to enable the Fannie Mae (and Freddie Mac) mortgage-financing machine to harvest ever greater volumes, profits and fees.

Indeed, the Fannie Mae saga demonstrates that once crony capitalism captures an arm of the state, its potential for cancerous growth is truly perilous. More importantly, it underscores that the resulting carnage can be vastly disproportionate to the alleged social ill that justified the original policy intervention.

In this case, the housing market had essentially recovered before Fannie Mae opened its doors. After hitting bottom at 125,000 units per year in 1931–1933, the volume of new starts had nearly tripled by the late 1930s. By then, it was by no means evident that the nation’s remaining willing lenders and solvent borrowers were producing the wrong answer with respect to the number of housing starts. So fiddling with an arbitrary goal of higher housing starts, the New Dealers gave birth to what eventually became a crony capitalist monster, and that was all.

Copyright © 2013 David Stockman. Used with the author's permission.

David Stockman was director of the Office of Management and Budget under President Ronald Reagan, serving from 1981 until August 1985. He was the youngest cabinet member in the 20th century. See David Stockman's article archives.

Inflation on the way?

A full and clear explanation of why inflation is just around the corner, per Mises Institute.

Killing the Currency

. . . there is no record in the economic history of the whole world, anywhere or at any time, of a serious and prolonged inflation which has not been accompanied and made possible, if not directly caused, by a large increase in the quantity of money.
— Gottfried Haberler, Inflation, Its Causes and Cures (1960)[1]

The phrase “not worth a continental” may be vaguely familiar to Americans as an old and quirky saying, but to Revolutionary War–era Americans it would have been a harsh reminder of a recent nightmare. In order to finance the war, the Continental Congress authorized the issuance of money without rights of redemption in coin or precious metals (unlike other currencies in circulation). In short order, over $225 million Continentals were issued on top of an existing money supply of only $25 million. Initially traded on a one-for-one ratio with paper dollars backed by coin or precious metals, within a mere five years Continental currency had depreciated to worthlessness.[2] It was America’s first major experiment with a fiat currency, and it cost many newly free Americans their livelihood and savings.

Such expansion of the money supply is not relegated to America’s past. In response to the 2008 economic crisis, by some measurements the Federal Reserve has more than tripled the money supply. With such pronounced expansion, will the U.S. soon experience significant price inflation, and if so, how severe may it be?[3] Answering these questions requires an examination of the money supply.

The Money Supply

The Federal Reserve creates money by three methods:

• Purchasing Assets:For purposes of the effect upon the overall price level, it does not matter which assets are purchased as long as they are bought with newly created money. This action is performed by the Federal Reserve’s “open market operations” which historically has consisted of buying and selling Treasury securities (and now includes a large dose of mortgage-backed securities). Purchasing assets allows the Federal Reserve to instantly increase the supply of money and manipulate both interest rates and the prices of securities through its selection of assets to purchase. After successive rounds of “quantitative easing,” the Federal Reserve announced a self-described “highly accommodative stance of monetary policy” on September 13, 2012 in which it committed to monthly asset purchases of $85 billion.[4] This open-ended policy will result in annual purchases of $1 trillion (especially significant when compared to 2012 U.S. Gross Domestic Product of less than $16 trillion).
• Lending Money to Banks:The discount rate is the interest rate by which commercial banks may borrow additional reserves from the Federal Reserve. It is a rate set by the Federal Reserve. With lower rates, banks are more inclined to borrow money, thus expanding the money supply. Currently, the rate is set at the near-historically low level of 0.75 percent. To emphasize how significantly low this rate is, it was set above 6.00 percent as recently as 2006.
• Lowering Banking Reserve Requirements:While not commonly understood, it can have the most immediate and profound effect upon the money supply and the economy relative to the other monetary creation tools possessed by the Federal Reserve. Commercial banks, by lending out demand deposits, create additional dollars in the system above-and-beyond that of the Federal Reserve’s actions. The word “fractional” in fractional reserve means they hold but a fraction of what can be demanded from them at any given time. Currently, banks only need to have 10 percent of their demand deposits available for withdrawal by depositors.[5] This means that with a reserve requirement of 10 percent, banks can increase the money supply equal to 10 times their demand deposits.

These three methods are simple despite assertions by Treasury officials and bankers that actions such as “quantitative easing” are complex. In fact, “quantitative easing” is quite easy to understand: previously there was X amount of currency, and now there is X plus Y.

The money supply can be measured in a variety of ways depending upon the definition of money. Three measurements of money supply available on a monthly basis since 1959 include: BASE (“Adjusted Monetary Base”), M2, and MZM (“Money Zero Maturity”).[6][7][8]

• BASE. Currency in circulation and deposits held by domestic depository institutions at Federal Reserve Banks.
  
• M2 Currency in circulation, savings deposits, and retail money market mutual fund shares.
  
• MZM. M2 with the addition of institutional money funds.

Given its three tools, how has the Federal Reserve recently increased the money supply relative to its historical actions? The chart below describes, on a percentage basis, increases in each monetary category on a monthly basis relative to its level on January 1, 1959.

Three trends are readily apparent from this graph:

• First, regardless of the definition of money, the money supply has expanded dramatically over time as the increases are measured in thousands of percentage points;

• Second, the overall expansion appears to have begun in earnest in 1971 which is, not coincidentally, when President Nixon severed the last links of the U.S. dollar (and effectively all other major currencies), from gold; and

• Third, the money supply as measured by BASE has exploded since 2008 (up 245 percent from December 1, 2007 to March 1, 2013) while the money supply from the other two measurements has not followed the same degree of increase (although they too have experienced accelerated growth).

Why has M2 and MZM not followed BASE? Note that the definition of BASE includes “deposits held by domestic depository institutions at Federal Reserve Banks” which is not part of the M2 and MZM classifications. Traditionally, to maximize profits, banks hold their “excess reserves” at close to zero. That is, they tend to quickly lend out any reserves they have over-and-above their legally required minimum. So the difference in BASE relative to M2 and MZM reflects the current lack of new lending by commercial banks.[9]

As Austrian economist Mark Thornton has noted, we live in a unique:

economic and financial environment where bankers are afraid to lend, entrepreneurs are afraid to invest, and where everyone is afraid of the currencies with which they are forced to endure.[10]

Unless this difference becomes permanent (which would be unprecedented), M2 and MZM should experience additional significant increases. Importantly, however, the potential for substantial future price inflation does not rest upon M2 and MZM “catching up” to the increase in BASE, for each of these monetary categories has soared in their own right since December 1, 2007 (M2 by 61 percent and MZM by 43 percent).[11]

Price Inflation and the Money Supply

Increases in the supply of money create price inflation, all things being equal. But what is not “equal”? That is, why is the relationship between monetary increases and inflation not on a one-to-one basis? There are several primary reasons.

• First, as the economy experiences real growth, the demand for money increases due to both the larger number of entities holding cash balances (i.e., more firms are created as the economy grows) as well as the general trend for economic actors to increase cash holdings with greater economic opportunities (i.e., goods and services). Increased demand for money raises its value which decreases the prices of all goods and services. The higher demand for money helps mitigate the inflationary effects of monetary increases.

• Second, there are timing issues between the increase in the supply of money and the appearance of price inflation. The time delay is not consistent throughout history, and is influenced by a number of factors.

• Third, the U.S. economy is not a closed system. To the extent dollars circulate outside of the U.S., whether as “petrodollars” or as the de facto national currency of a different state, the diversion of such dollars from the U.S. economy helps alleviate price inflation due to increases in the money supply.

Although the timing of the emergence of price inflation can only be estimated, the correlation with money supply growth is indisputable.[12] Based on money supply growth — by any measure — since 2008, substantial price inflation is likely. And if price inflation mirrors the growth in money as measured by the monetary category BASE, the ensuring price inflation will be unprecedented since the Continental dollar.

It is important to note that regardless of any future curtailment of monetary expansion, the inflationary forces are already within the system. It does not matter if the Federal Reserve ends its “highly accommodative stance of monetary policy.” Itspast actions will have a pronounced future reaction.

Conclusion

In the U.S., the last several years have witnessed an unprecedented expansion of the money supply. Even America’s failed experiment with Continental currency, while incorporating a larger expansion of the money supply, is not truly comparable. For in Revolutionary War-era America, alternative currencies were readily accessible and used in the daily course of business, thus providing a measure of ability to disengage from the failing Continental money. But no such options exist for today’s Americans who must transact their daily business in U.S. dollars. So while the Continental dollar was disastrous, the future situation for today’s dollar may prove far worse.

All written content in this article is for information purposes only. Opinions expressed herein are solely those of WindRock Wealth Management LLC and its editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser prior to implementation.

Christopher P. Casey, CFA®, CPA is a Managing Director at WindRock Wealth Management. Send Chris Casey mail. See Chris Casey's article archives.
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Notes

---

[1] Haberler, Gottfried. Inflation, Its Causes and Cures (Washington, DC: American Enterprise Association, 1960), p. 16.
[2] Rothbard, Murray. A History of Money and Banking in the United States: The Colonial Era to World War II (Auburn, Alabama: The Ludwig von Mises Institute, 2002), pgs. 59-60.
[3] Austrian economists generally prefer the classic definition of inflation as stated by Ludwig von Mises to be “the increase in the quantity of money and money substitutes” and not “the general rise in commodity prices and wage rates which is the inevitable consequence of inflation.” ( Planning for Freedom, 1952). By utilizing this classic definition, Austrian economists attempt to emphasize the unique role of money in creating price level increases. Due to the current wide acceptance of the definition of “inflation” to be “the general rise in commodity prices and wage rates”, this article uses the term “inflation” synonymously with its current usage.
[4] (Federal Reserve Press Release). 13 September 2012.
[5] Technically, the reserve requirement is tiered, but overall the effective reserve requirement approximates 10%.
[6] The M2 money supply data presented herein is actually the category “M2 less small time deposits”.
[7] Data has been presented since 1959 which is the first year data is available for M2 less small deposits and MZM. BASE data is available from 1918.
[8] Federal Reserve Bank of St. Louis.
[9] For an interesting discussion of data potentially signaling this change, see Murphy, Robert. “On the Brink of Inflationary Disaster”. Ludwig von Mises Institute. 25 August 2011.
[10] Thornton, Mark. “Where Is the Inflation?” Ludwig von Mises Institute. 16 January 2013.
[11] Through March 1, 2013.
[12] As an aside, some may argue that, in addition to the supply of money, inflation can be caused by increases in the velocity (speed of circulation) of money. The reasoning, however, is reversed: the velocity of money is not a cause of inflation but rather a result of people spending quicker in the anticipation of the currency continuing to fall in value.

The dishonorable and disgraceful Clinton/Obama years

One could only wish that all those who inflicted the Clintons and the Obama crowd on the rest of us would read and think long and hard on this particular column.  When Shakespeare's character famously said, "There's something rotten in the state of Denmark" he was referring to the Clinton and Obama governments.

Hillary's - and now Obama's - Vast Left-Wing Cover-Up By Jim Guirard Almost 20 years ago, early in the Clinton-Rodham-Gore era, the late New York Timescolumnist William Safire charged that First Lady Hillary Clinton was so routinely dishonest in her reaction to the many scandal-"gates" of which she and Husband Bill were being accused as to merit the label of "congenital liar." According to that highly acclaimed political affairs commentator and author of theTimes "On Language" column, Hillary's tendency to spin, scam, deceive, and lie in her response to charges of impropriety and corruption (e.g., in Whitewater-gate, S&L-gate,Travel Office-gate, Cattle Futures-gate, Missing Files-gate, Hubble-gate, Vince Foster-gate, Lippo/China-gate, and many more) was so deeply rooted as to be in her genes. Now that President Barack Obama is being accused of similar spins, scams, and cover-ups, the reaction of the White House, the left-wing Democrats, the establishment media, and most of academia is -- like then -- one of indignant outrage.  But are not Barack and Hillary joined at the hip in their Saul Alinsky ideologies, their Rules for Radicals tactics, and their current tar baby of the Benghazi cover-up?  Back then, in a masterstroke of misdirection and disinformation worthy of Harry Houdini, Hillary loudly alleged (and a compliant left-wing media loudly amplified) a "vast right-wing conspiracy" against both herself and First Husband Bill -- with all of the blame going to the dastardly right-wing Republicans. And so it will be again if the finger-pointing, blame-gaming "Progressives" (code-word for Socialists) are given free rein to demonize Barack Obama's critics and detractors, no matter how correct and justified the Tea Partiers and other Republicans are in their anti-Obamanism. The Other Side of the Coin -- Proofs of a "Scamalot" Cover-Up But this victimization need not be the case if Obama's critics have the good sense to charge -- in Hillary Clinton style -- a vast left-wing cover-up of not only the Benghazi and IRS scandals, but also many other BHO spins, scams, false denials, false promises, and programmatic abuses. Now, in an exercise of "history repeats" and of appropriate legacy labels for these two less-than-truthful presidencies -- which happen to share the VIP persona of Hillary Clinton -- here is a critical look at some of the ignoble, deceitful, and scam-filled aspects of Obama's "Age of Scamalot" presidency.   In terms of the latter label, this author's January 30, 2010 posting on the American Thinker -- "From Camelot to SCAMALOT" -- took the first step toward forever disconnecting Jack and Jackie Kennedy's legacy label from the always upbeat, smiling, and charming but so deeply deceitful presidency of Barack Obama. Having completed four tortured years in office -- and now extending "Four More Years" into nearly a decade of redistribution, dependency, and egalitarian poverty -- it is a legacy label which should be as damaging to today's Obamanoid and Clintonian "Progressives" as the heroic-sounding "Camelot" label has been a political benefit for almost 50 years to the Kennedys and the Democrats as a whole. So desperate are the Obamanoids to escape the dreaded "cover-up" label that they have concocted an endless list of euphemistic alternatives by which they and the media might paint a much less sinister picture of L'Affaire Benghazi -- e.g., a sideshow, a political carnival, no "there" there, old news, a witch hunt, a fleeting story, a Fox News story, a minor bump in the road, Speaker Boehner's fixation, a desperate right-wing distraction, radical partisanship, a GOP cut in funding, a tool for fundraising,ad infinitum. But at the base of it all is the question: just who is this man of the vast left-wing cover-up?  Who is the man whose entire life history is either unknown or so highly spun as to dwarf even the Benghazi Talking Points fiasco?  (Author's note: A remarkable list of at least 35 separate offenses of cover-up, too lengthy for this posting, will soon be available as an appendix to this essay on my own TrueSpeak.org website.) And is he even now covering up and scamming the breaking news (just as this article is being submitted for publication) about his April 31, 2010 White House meeting with National Treasury Employees Union President Colleen Kelly -- the very day before NTEU leaders at the IRS initiated the illegal targeting of Tea Parties and other "conservative" and "Patriotic" applicants for tax-exempt status? The Great Evil of False Words, Labels, and Narratives So now, in this shameful "Age of Scamalot" and of vast left-wing cover-ups, let us recall what the great Chinese philosopher Confucius said 2,400 years ago when asked what would be his first action if he were placed in charge of the government of China: It would certainly be to correct language. If language is not correct then what is said is not what is meant. If what is said is not what is meant, then what ought to be done remains undone. If this remains undone, then morals and acts deteriorate. If morals and acts deteriorate, justice will go astray. If justice goes astray, the people will stand about in helpless confusion. Hence, there must be no arbitrariness in what is said. This matters above everything. And much closer to home and to the current political situation, that great American man of words, Mark Twain, once asserted that "[t]he difference between the right word and the almost right word is the difference between lightning and a lightning bug."   If that be the case, let us hope that a thoughtful and proactive use of many truthful "lightning words" and a strict avoidance of the many cover-up narratives cited above will: First, help to unmask both Hillary Clinton's and Barack Obama's insidious vast left-wing cover-up -- which stretches back several decades to their shared lockstep devotion to the "transitional Marxist" likes of Antonio Gramsci, Saul Alinsky and, alas, George "Soroctopus" Soros, and Second, will enable all of us Americans to limit this ignoble "Age of Scamalot" and its OPRAH Land (Obama-Pelosi-Reid-and-Hillary Land) Plantation of dependency, egalitarian poverty, and indentured servitude to no more than the unfortunate "Four More Years" to which a slim majority of American voters have recently sentenced us all. A D.C.-area attorney, writer and national security strategist, Jim Guirard was longtime chief of staff to former U.S. Senators Allen Ellender and Russell Long.  His TrueSpeak.org website is devoted to truth in language and truth in history in public discourse.

Read more: http://www.americanthinker.com/2013/05/hillarys_and_now_obamas_vast_left-wing_cover-up.html#ixzz2ULOc5PVI
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The anecdote to Islamic outrages?

This is a movement and political party to watch.  As Islamists continue to terrorize the West, movements like the one and politicians like this one will become a force.  It is most apparent the politically correct parties have no answers to bombings and murderous actions like the recent beheading that took place on the streets of London.

Die Freihiet, the German political party, is called, in full, Freedom Civil Rights Party for More Freedom and Democracy (Die Freiheit Bürgerrechtspartei für mehr Freiheit und Demokratie).

Freedom was founded in October 2010 by the Berlin parliamentarian René Stadtkewitz.

Stadtkewitz was expelled from the Christian Democratic Union in 2010 after inviting Dutch politician Geert Wilders of the Party for Freedom (PVV) to give a speech in Berlin. A number of other politicians, who left their respective parties, also joined Stadtkewitz.

Mr. Stadtkewitz was born in communist East Berlin. As a young adult he worked in a factory making industrial equipment. After that, in September 1989 -- two months before the fall of the Berlin Wall -- he fled East Germany with his wife and son. He returned to Berlin after German unification in 1990 and joined the CDU in 1995.
Stadtkewitz is a former long-time member of the Berlin House of Representatives.

At Freedom's opening meeting he said that "the established parties, unfortunately, are not ready to take a clear stand but instead abandon the people to their concerns". He then went on to say that "Western civilization, for centuries a world leader, faces an existential crisis".

At the heart of this existential crisis is Islam in Europe. Stadtkewitz said that "Islam is not just a religion but also a political ideology with its own legal system."

As a response to the clear and present threat from militant Islam, Freedom has called for the scrutiny of all German imams, mosques, and Islamic schools, as well as for a review of Islamic organizations to ensure their compliance with German laws. Freedom also condemns all efforts to build a parallel legal structure based on sharia law.

Because of Freedom's position on Islam, it also rejects the Turkish accession to the European Union.

At a 10th anniversary remembrance of the 9/11 attacks in New York, René Stadtkewitz said:

The three most important terrorists of the 9/11 attacks had studied in Hamburg and were also radicalized there. Germany must be made aware of this ... [but] nothing has changed here. We must not only openly debate the political ideology of Islam; we must also consider the political consequences of such an ideology.

In an interview with the website Politically Incorrect (PI), Robert Spencer of Jihad Watch commented on both the problems Europe faces and also the encouraging fact that various political parties are attempting to deal with such problems. In one part of the interview Freedom and Geert Wilder's PVV were discussed. Spencer said:

[These] parties give me great hope that Europe is not dead, that Eurabia is not a reality and never will be, and that European people will reassert their freedoms and the human rights that are threatened by Islamic law.

Young Turks

In an interview on Dutch TV, René Stadtkewitz took the interviewer around the Kreuzberg and Neukölln area of Berlin. Stadtkewitz said that "these neighbourhoods are also called the largest Turkish city outside Turkey, a society in itself". During the same interview, one of the co-founders of Freedom, Aaron Koenig, said that "the equating of criticism of Islam with 'the right' is completely wrong, I would really like people to resolve this for once". He then went on to say that "it is clear that Islam-criticism derives from the centre of society".

The zealots of mass -- and unquestioned -- immigration keep on telling us that all immigrants are a vital source of skills and productivity; yet in Germany, as in the UK, large numbers of the immigrant population are unemployed. This is especially true of Muslims. In Germany, 2nd and 3rd generation immigrants are often undereducated and unemployed; a huge weight on Germany's welfare state.

The problems Germany has with Muslims are similar to those of the UK, except instead of mainly Pakistani and Bangladeshi Muslims, the Germans have a very large Turkish population. As Michael Stürzenberger, the spokesman of the Politically Incorrect (PI) group and provincial Bavarian Die Freiheit chairman since early 2012, puts it:

Back then, Germany gave in to US pressure, and thus, Turkey was able to unload a portion of their 30% unemployed on us at the beginning of the 60s. They came as guest workers because our government back then hoped that they might sometime leave again. After all, there wasn't the desire of having workforces with a foreign culture here for the long term. But they stayed, brought their relatives and married partners from Turkey.

Stürzenberger went on to say why Germans had a problem with many Muslim Turks:

When people knuckle under such attempts at intimidation, the Muslims always feel more superior and as a result become even more audacious. A bar needs to be shoved across this aggressive behaviour. It needs to be made unmistakably clear to them whose land this is, and which rules are to be followed here. As Moslems they are in our eyes still tolerated guests, even if they might have been born here because we consider Islam to be a dangerous, hostile ideology.

However, this is most certainly not a question of race. That is, many Turks have indeed assimilated themselves, just very rarely Turkish Muslims. Stürzenberger says that

...all citizens of Turkish origin who have assimilated out of conviction, that is Kemalists, Christians, Atheists, many Alavites and those Moslems who don't worry about the commands of their ideology and are willing to distance themselves from all of the components hostile to the Constitution, these are of course heartily welcome among us, and they aren't the ones being described in this article. This, of course, also means those mostly non-Moslem immigrants from other Islamic countries who have assimilated as well.

Policies

Of course not all of Freedom's policies are focused on Islam or on Muslim immigrants. Nonetheless, if the Islamization of Germany continues, Freedom's policies, along with everyone else's policies in that country, won't amount to much in the long run anyway.

Here are some of Freedom's other core policies:

i) The introduction of direct citizen democracy based on the Swiss model.
ii) Euroscepticism.
iii) Tougher measures on crime.
iv) Support of Israel.
v) Stricter social welfare policies.

The program of the party is modeled after that of the Dutch Party for Freedom.

Freedom's main problem with the German political system is that the German people

share [a] fear that the current policy of ignoring citizens will, of turning a blind eye to serious social problems, of incurring escalating debt, and last but not least, that all of this within the framework of a wrongly constructed European Union, could ultimately jeopardize prosperity, liberty and even peace in Germany and Europe.

Freedom explains its position on direct democracy by saying that "the political system in Germany has turned into a dictatorship of [the] parties". There is also a German problem with "a low election turnout and frustration with [the] parties".

Freedom's solution to these problems is to "introduce a direct democracy as practiced in Switzerland with nationwide referenda allowing Germans to vote on their constitutional law."

Read more: http://www.americanthinker.com/2013/05/die_freiheit_the_german_freedom_anti-islamisation_party.html#ixzz2ULH40FE6
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