Step On Up! Come On Down!: Navigating the Funhouse Economy

Column by new Root Striker Everett Millman.

Exclusive to STR

We ought to be well aware that artificially pumping up the money supply and allowing the State to meddle in the markets are bad in the long term, but equally important are their negative short-term effects that distort prices way out of kilter; we are living in a fantasy world of Tolkienesque proportions if we believe assets are currently being valuated accurately.

Everything is boom-and-bust, as bubbles are being inflated until they inexorably pop. We are surrounded by them on virtually all sides now, these grotesque, bloated bubbles that should be free markets.

What’s so laughable and so myopic about this whole affair is that there are always a privileged few who make it out just before the bubble bursts. They reap the benefits of the spuriously inflated environment without waiting around for the hammer to fall. Do our modern robber barons ride quietly into the night with their tidy (try: exorbitant) profits? Not often. Instead, they are generally in a position to create a new bubble somewhere else.

Although there are certainly nefarious characters involved in these Ponzi schemes, they could hardly do it alone; they require the cooperation—whether knowing or unknowing—of average investors. Most of these investors are, at least with their money, rational thinkers. So, the fraudsters of the State must find a way to make the distorted markets appear on the surface as though they are operating rationally.

What they do is tantamount to setting up a “funhouse,” where oddly shaped mirrors and strategically uneven floors create the frightening illusion of imbalance—except, in this case, they are using the same implements to achieve the illusion of balance. Oh, yes, yes, it looks perfectly safe to go further and further out on that limb, because the smoke and mirrors obscure how weak and infirm that limb is—as well as distracting us from the terrifying depths of the drop below.

The stock markets are especially subject to the distortions wrought by the Fed Funhouse. As investor behavior is influenced toward overleveraging and irresponsible risk-taking with near-zero interest rates, asset bubbles begin to form. Investors seek instant gratification—higher yields—no matter the hazards. Really, the goal is to pervert everything so that the market can’t properly assess risk or value. The market’s hands become tied; it can’t do its job of price discovery because the available tools are defective. A truly free market would punish these sorts of distortions, so ever-greater State control of the economy is required to prop up the facade.

Many pundits will describe the untenable scenario above in lucid, accurate detail, but will wrongly ascribe the problem to the philosophy of individualism, as if this is somehow synonymous with greed and selfishness. They mischaracterize the problem as deriving from some runaway self-interestedness when the real cause lies in our misguided belief in State-sponsored collectivism. When we demonize self-interest and—unduly—hold ourselves accountable for everyone else’s well-being, we invariably entrust the State to oversee the distributive “solutions” to society’s ills. Only the State is powerful enough and pervasive enough to carry out the task, the immensity of which justifies greater and greater expansion of the federal government.

It’s all a farce. In the name of consolidating the State’s power, the Federal Reserve will empower bankers to take all sorts of blatant risks, because they know nobody is going to stop them. The other departments of the government bureaucracy—especially the executive branch—take similar unchecked actions all the time, sacrificing public trust and confidence for anything that will centralize power. It is abetted by our courts and our Congress.

When it comes to social issues, centralization is especially done through fear-mongering. It stands to reason that people who are sufficiently fearful (and confused) are more willing to give up freedom in exchange for “security.” With matters of “business confidence” and the economy, however, quite the opposite strategy is employed. The State uses false optimism and glosses over anything negative about the functioning of the economy, pointing instead to the exceptional(ly suspicious) growth of stocks or the chimerical reduction in unemployment.

The idea that any form of central planning by the State can help us achieve “economic equality” (if such a thing even exists, or is desirable) is equally absurd. As reported on Zero Hedge recently, when speaking about how central banking policy actually creates inequality, an ECB executive board member, Yves Mersch, revealed the true source of our problems: central banking. Specifically, the fractional reserve banking scam has left us all so indebted that we are little more than the chattel of the State.

It’s easy to see who benefits from this system. Banks enjoy the protection of the government, and can even be “bailed-in” with depositor funds. Meanwhile, people continue to be robbed of their wealth every day that they hold on to their dollars rather than real assets.

So long as the Fed can continue to enslave the markets with the dollar, the real economy will erode further. Since the introduction of the Federal Reserve note in 1913, the currency has lost over 95% of its purchasing power. Gold, on the other hand, has essentially the same value against other goods, services, and commodities that it did a hundred years ago. The real value that one ounce of gold could buy in 1913 is largely unchanged in 2014. Which of the two sounds like a more stable measuring stick for value? Which one derives its worth solely from a hollow government decree?

Getting government influence out of people’s lives is always a good thing. A great deal of attention has (rightly so) been focused on social issues, and the threats to civil liberties posed by various abuses of government authority, but we must not forget how manipulated the economy is. Between the false optimism, the distorting mirrors, and the sugar-coating, the Fed Funhouse is just as threatening to our exercise of liberty as any other arm of the State.

It is, in fact, the most terrifying place you could have spent this Halloween.

Your rating: None
GainesvilleCoins's picture
Columns on STR: 2

P { margin-bottom: 0.08in; }A:link {
Everett Millman is the lead content writer at Gainesville Coins, a large distributor of silver and gold.