Austrian Keynesian parting of the ways: Jim Rogers and George Soros

It’s fascinating to see two financial giants have such spectacular success but have such differing views on economics, morality, and goals. George Soros and Jim Rogers are like two sides of the same coin. One is a radical leftist Keynesian, the other a free market Austrian. Both worked together in the 70’s on the Quantum Fund, a hedge fund that made both men spectacularly rich. After that, one retired to a quiet life of motorcycling around the planet and seeing the world. The other started doing mischief.

George Soros is known to many as a scary manipulator and radical leftist who has his hand up the world’s shirt, playing the Globe like a puppet master. He is said to have “broken the bank of England” though I have little idea what that actually means. The man believes in globalization, central planning, inflation, bailouts, and State control. He loves Obama and the Federal Reserve.

Jim Rogers is known to many as an affable guy who likes the Orient. He lives quietly and gets interviewed by this and that financial network about what investments to make. He talks about morality a lot, the immorality of bailouts, believes in sound money, gold, believes the Fed should be abolished, and loves Ron Paul.

The question is, how is it that these two men actually worked together on the Quantum Fund, split apart and developed such different ideas about macroeconomics and politics?

The answer, I believe is that they don’t actually have different beliefs. They have different goals. Soros wants to control as much as he can. This is why he is a Keynesian. Not because he believes it’s good for the people, but because once you’re on the top, inflation, government control, and centralization can only benefit you. Jim Rogers and George Soros both know that the free market is the only thing that works, and is the only thing that is moral. It’s just that George Soros would rather keep all the power for himself and fool people.

The point is this. Those at the top, in the Fed, at the helm, in the treasury, the ones actually in charge of the central plan that is killing us, all know very well that the whole thing is rotten. They just don’t care.

The battle between Keynesianism and free markets is not a battle between economic ideologies. It is a battle between freedom and slavery, good and evil.

Government debt, the consumer promising production

Government doesn’t produce anything. It always consumes more than it produces. When it attempts to produce something, it always has to consume more in tax revenue than it produces in order to produce whatever it is it’s trying to produce. So you always end up with a black hole. This is because if the government needs more money, they can ask the Fed or tax you for it. A constant source of revenue at the point of a gun or the flick of a switch.

We are all taught that money doesn’t grow on trees. But for the government it does.

What does it mean exactly that “the global economy is broken”? How can that actually be quantified? Well, we discussed previously that money is not wealth. Money is merely the means with which one can either produce or consume wealth. So theoretically, we could have a world with money everywhere but no wealth. This would be the world of maximum inflation and minimum prosperity.

A broken global economy means that too much money has been spent on consuming wealth and not enough has been spent producing it. An undrugged economy would be able to balance that out when investors spot a need for more production and supply it. But that can’t happen in this economy because the main consumer, the government, forbids market entrepreneurs from entering the market and rebalancing the production side of the equation with regulation, taxes, forms, and the like.

So the government, just like the Keynesians want, becomes the spender of last resort. Spreading money around and getting less efficient in every spending round. Whereas in the first round, say they had to spend $10 for every unit of wealth, now they have to spend $50. But the amount doesn’t matter to them because they can always print it.

And then you have “government debt”. Debt meaning money is owed. Money, again, can either represent newly produced wealth (in the best case) or preexisting wealth. The former is when a business succeeds. The latter is when you are taxed or your money inflated.

Any normal business pays back its debt by either producing or going bankrupt. The government though can just steal it from you and pay back its debts, making you poorer.

Jews control the economic world…as always

Anti Semites and other lunatics love spreading the canard that Jews control everything and run the world like a puppet show. This is obviously stupid, but it does, like all lies, have a smidgen of truth in it. (See Rashi on Joseph’s dreams.)

We don’t intend to, but the world always divides on Jewish schisms. Like the claim that Israel causes all the world’s wars, it sort of does inspire them if not intentionally. There’s nothing we can do about the fact that we are the core of Western Civilization other than to accept it and assume the role in order to lead the world, finally, to peace. Until we accept the role that the anti Semites insist that we have, the world will continue to be at war.

The most obvious example right now is Iran’s intention to destroy Israel, and the fact that America is now threatening to enter the scene and start yet another war. We, the Jews, didn’t want anything to do with this, but once again, we are forced to take center stage. That is our role after all.

But this post was initially going to be about the economy and economic philosophy. So here it is. The two schools at war now are the Keynesians and the Austrians. Besides Keynes himself, virtually everyone else in this war is Jewish.

On one hand, you have Paul Krugman, Alan Greenspan, and Ben Bernanke, all Jews. They like the idea of price stability, because they think price stability is essential to keeping an economy stable. So when prices go down, they buy bonds and print money so the prices go back up. And when prices go too high, they sell bonds and suck up money so they go back down when they should be higher.

The opposite of course is true. Price stability only destabilizes an economy. As supply and demand changes, prices MUST change. Otherwise, malinvestment occurs when people buy things that aren’t worth what the real market price should be and vice versa. This gives you booms and busts.

On the other side of this war are Ludwig Von Mises, F.A. Hayek, Peter Schiff, and Murray Rothbard. All Jews. They think we shouldn’t do anything to fix prices. As Mises puts it in his book “The Theory of Money and Credit”: (Page 102 in the Liberty Fund edition for those interested)

The loss of a consumption good or production good results in a loss of human satisfaction; it makes mankind poorer. The gain of such a good results in an improvement of the human economic position; it makes mankind richer. The same cannot be said of the loss or gain of money. Both changes in the available quantity of production goods or consumption goods and changes in the available quantity of money involve changes in values; but whereas the changes in the value of the production goods and consumption goods do not mitigate the loss or reduce the gain of satisfaction resulting from the changes in their quantity, the changes in the value of money (prices) are accommodated in such a way to the demand for it that, despite increases or decreases in its quantity, the economic position of mankind remains the same. An increase in the quantity of money can no more increase the welfare of the members of a community, than a diminution of it can decrease their welfare.

Ludwig Von Mises. A Jew.

And as the Keynesian Jews and the Austrian Jews duke it out, the global economy hangs in the balance. Consider me one more Jew on the Austrian side of the equation.

The Jews control the economic world…as always.

Military interventionism and Keynesian interventionism are two sides of the same coin

The bedrock of Keynesian economics is that depressions and recessions can be avoided by the government printing and spending a bunch of paper. We can all live in a quasi-economic boom forever by the blessed gift of government intervention.

The key mistake made here as we have discussed in this blog before is hubris. Keynesians believe they have finally found the cure to economic downturns in government power. A “new economy” they spoke of before the dot com bubble burst. The “your house will never lose value” mantra of 2002-2006.  They always think they found the key to everyone being rich forever…until all the paper wealth evaporates and the fed has to find another sector to stick it in and tell everyone to go look over there and invest.

Imagine if sleeping were considered “recession”. Then a Keynesian would suggest downing caffeine pills at 3 am and celebrate the fact that you are still awake, though drooling, zombified, and shaking. But you’ve been “stimulated” and the recession of sleep has been countered!

Until of course you run out of caffeine pills and you collapse at high noon in your factory on the assembly line and get tenderized into a car part. That’s when the bubble bursts. So they suggest more caffeine pills and slap themselves on the back with a good raise in printed money salary.

But this post was about military interventionism. Just like economic interventionism, the military kind is based on spending insane amounts of paper money and assuming, with much hubris, that the government can keep the entire world balanced by handing out varying amounts of paper to different dictators and sending in the army all the way to Borneo as needed.

Just as government spending keeps economies in a quasi state of caffeinated zombishness, government spending on the military also keeps the entire world in a piss-offish caffeinated ready-to-strangle-each-other grip until the caffeine runs out and somebody starts WWIII.

Take my country, Israel. American government intervention here has brought us the Oslo Peace Process, which has kept both sides at each other’s throats for 17 years. Or more than that. If we weren’t pressured in ’67 to stop the war, there would be no conflict now. And every time there’s a flare up it just gets worse and everyone intervenes so nobody can win.

How about you just let us go at it until somebody wins and decides what to do with the loser?

There’s some Austrian Economic Foreign Policy for ya.

Ron Paul 2012.

What thermodynamics can teach us about economics – money is NOT wealth

One of the basic assumptions of Keynesian economics is that government can plop money into the system when the system is slowing down. The new money starts flowing around and things get revitalized. The new money is either borrowed from someone else, say China, or it is stolen from the population of the US itself by printing it and slicing off a piece of everyone’s wealth by diluting the dollar.

Let’s just assume for now that the money is borrowed instead of printed. OK, so the US government borrows money from someone else by selling a bond and then using that money to “jumpstart” the economy. They “jumpstart” it by sticking that money somewhere and hoping that whoever they give it to uses it to make more money. Eventually, the money that they borrowed has to be repaid.

The moral hazard here is that the government feels that it can just print the money when the bill comes due. Technically, they can. And that’s the problem.

Here’s the problem restated: Let’s say a group of people get together to invest in a start up. They risk their wealth to pour into a business that is going to produce…I don’t know…hoverboards. If they successfully produce one, then they’ll get a return on their wealth and end up with even more wealth. Because this group of investors knows very well that if they fail, they can’t just “print” the money to pay their debts. They have to succeed or they go bankrupt. They lose their wealth, and that’s it. That’s why they try really hard to succeed.

They are taking their wealth, which they worked for, and sticking it into hoverboards, and risking it. If they win, the economy grows and more wealth is added to the economy. If they don’t, that welath is lost in consumption that didn’t produce any wealth in the end.

But if the GOVERNMENT gives out a loan for hoverboards and the people they gave it to are lazy asses and they use it to buy jaguar-skinned comforters filled with platinum dust instead of figuring out how to produce hoverboards and the government doesn’t really care because if they lose the money, they can just PRINT it, then the chances that the money loaned will produce NOTHING, skyrockets.

So when the government moves to stimulate the economy with someone else’s wealth, they are ideally trying to get people to produce things with that wealth so in the end there is more wealth so they can theoretically pay back the people they borrowed money from. But if they can’t, they just print up money and steal wealth from you and ship it to China thereby taking even more wealth out of the economy and draining the whole system. Or even more ludicrously, they can print it up to pay an American citizen back, thereby stealing from him and paying him back at the same time.

So where do thermodynamics come in? The first law of thermodynamics states that the amount of matter and energy in the universe is constant. The second law of thermodynamics states that the universe tends towards chaos inexorably. The only reason things can get organized here on planet Earth is that we have a constant source of energy pouring in here, which is the sun. But we have to do work in order to organize things here. The economic equivalents of those laws, as close as I can parallel them, would be these:

Matter and energy in thermodynamics equals money in economic terms. Organization in thermodynamics equals wealth. So the economic equivalents of the first two laws of thermodynamics are

  1. The amount of money in the economy is always constant
  2. The economy always tends towards chaos, unless we use money to organize things, thereby producing “wealth”.
So, whereas the amount of money in the world is constant, the amount of wealth in the world is always changing. If money is used to produce things (organize things, create hoverboards), wealth increases. If money is used to consume things (eat, party, purchase jaguar skinned comforters stuffed with platinum dust) wealth decreases. But money always stays constant. Money is only a means with which one can either produce or consume wealth. Just as matter and energy is only a means with which one can either create or destroy.

The Keynesian approach contradicts these laws by equating money with wealth. It says that the amount of money that exists in the world varies at any given time by government decree. It also assumes that the economy tends towards wealth instead of chaos, because it doesn’t matter where the money goes as long as it’s flowing according to Keynes. For Keynes, the very act of money moving through the system means that wealth is being increased. Yeah, and I have a voodoo doll at home that works just great.

So what you’ll have in the end is a big ball of flaming economic entropy with a whole bunch of money but no wealth anywhere. Welcome to the Keynesian Debt Bubble. Welcome to the 21st century.


Fiat Money or a gold standard – either way it’s backed by work

Thinking about paper currency lately, money backed by nothing so to speak. This is in contrast to money backed by gold. Meaning, first people passed around gold or silver, then they got tired of carrying it so they started passing around paper that could be redeemed for a certain amount of gold or silver.

It hit me today. There really isn’t such a thing as money backed by gold either. Gold only represents something. That something is called work. Gold doesn’t and cannot create prosperity in itself. All it can do is sit somewhere and look shiny. Gold only represents the prosperity achieved by people who do work.

Gold represents work better than paper because no self respecting person will give you his gold without you giving something for it in return that he wants. So when you are paid in money that is backed by gold, that gold is definitely backed by work done by somebody somewhere.

Can paper represent prosperity? Sure it can, in theory. But just like gold, it only represents prosperity that already exists.  One dollar not redeemable for gold can theoretically represent the same amount of work that a dollar redeemable for gold can represent. But the problem is, one dollar not redeemable for anything can be printed really really easily. And when someone, say the fed, puts another dollar into circulation, that dollar still represents something.

It represents work that someone else did. There’s no other way to see it. When the Federal Reserve puts money into circulation at the push of a button, and people take that money and use it, that money is work stolen from someone else by the government.

So what is “stimulus”? What is government “spending”? Stimulus is when the government collects all the work done by the population of the United States, steals a part of that work, and uses whatever it stole to give it to a sector they like or deem important.

What is government “spending”? Well, it should be what a population gives to a government by social contract in order to protect the individuals of that population from other individuals who would try to hurt them. This should NOT cost all that much money, and therefore shouldn’t take much of the population’s work. But in the US, government spending is treated as if it creates prosperity instead of represents prosperity that already exists. So governmnet spending under Obama and Keynes is when the government decides it knows exactly where your work should be invested, and does it for you against your will by pushing the print button.

Screw that. This is insane.

Keynesian Hubris – Man as an Economic God

Here’s the difference between Keynesian economics and Austrian economics illustrated by example. Austrian economics believes mistakes (money put in the wrong place, aka “malinvestment) have to be paid for by loss of that money. Government, or man, cannot stop the loss of money by mistakes being made. For Austrians, money is real, like gold or silver. Paper money is only representative of gold or silver that exists somewhere, and therefore cannot be wasted on buying mistakes.

Keynesian economics believes that mistakes (money put in the wrong place or “malinvestment”) can be bought by government so no one loses money. Money is created by government by the word of government and paper money represents nothing. Government, therefore, can fix any mistake at any price, and man becomes God of the economy.

Let’s do a case study. Let’s say you need $10. So you sell a piece of paper, a bond, a contract, for $10 to someone that says you owe him $11 one year from now. You now have a $1 deficit and he has $11 in the form of a piece of paper, or a bond, that says you owe him $11 in a year. Let’s say you take his $10, invest it in a business in the private sector that produces, I don’t know, a revolutionary kind of cheese. The business succeeds and gives you back $12 from your original $10, selling the cheese for $15. Then you take that money the cheese company gave you, give $11 of it back to the guy you owe $11 to, and you’re up $1, he’s up $1, the cheese company is up $3, and the cheese people can make their cheese thanks to your $10 investment. Everyone wins. The new money is printed up for the Keynesian, the gold or silver is taken out of reserve for the Austrian. In such a case, the Keynesian is actually better off, because he doesn’t have to find actual gold to back up the new dollars created by the good investment in cheese. If every investment worked out, Keynesian economics would be a great system. Unfortunately, reality does not work this way.

Now, let us suppose that you borrow $10 from a guy who is expecting $11 back in the same way. You take that $10 and hire (purchase) a guy who sits at a government desk filling out unnecessary forms. This is called a “government job” in the “public sector”. He produces no wealth, no cheese he can sell for more money, and just eats up your $10. Now you still owe $11 to the bondholder, but you have nothing. Keynes says, “Print up $12!” So you print it, give $11 to the bondholder, and pocket $1. Well, it looks like everyone wins, but nothing was actually created, so it now takes more money to buy the things that the bondholder was going to buy with his $11 because there are less things of value in the world and more “money” to buy those less things with. He now really only has $9.

The Austrian, in such a case, says that the bondholder should lose his $10 instead of be paid $11 in money off the presses. This keeps the money supply constant, and it requires people to pay for their mistakes and try not to repeat them again.

Man is not an economic god. Since there are mistakes made in this world, those mistakes must be paid for, whether in inflation or loss of investment. Keynes runs to the presses at this point, so all the mistakes made in the world are paid for by ordinary people whose money is affected when the government prints money to paper over mistakes.

If Austrian economics ran the world, the people who made the mistakes would take all the losses, and the people who saved money would be unaffected.

Once government pays for all mistakes, or “bails you out” then people become more encouraged to continue making mistakes. The more mistakes made, the less value there is on the planet, and the more poor people there are. Keynes just spreads the pain around to everyone, 99% of whom do not deserve the pain because they didn’t make the mistake.

Austrian economics clears debt whenever it cannot be paid and takes small losses as they come. Those who made the mistakes are wiped out and must start over, and the rest of society keeps building and creating wealth.

Keynes covers up all mistakes by printing the money to make it look like the mistake doesn’t matter. Keynes hopes to pay for the mistakes through “growth” meaning Keynesians hope that at some point, people will make much less mistakes and eventually pay for the mistakes made in the past by making really good investments in the future. But train people to rely on government to print money in response to mistakes, and they won’t ever make good decisions to pay for past mistakes. So debt goes up and up and up and governments need more and more and more money to cover up the mistakes until at some point, money itself is not trusted as a medium of exchange.

At some point along the way, the big piling mistake that the Keynesians keep piling and piling overflows, and all the pain stored up in that giant pile (aka a “keynesian bubble”) is released in one big wave leading to absolute disaster.

We just saw a bout of “global easing” by central banks (read: money printers) around the world. That means they’re printing more money to paper over the mistakes. The markets skyrocketed because now there’s more money to put into the system. But that money represents no new created wealth at all. It’s just existing wealth more diluted.

At a certain dilution, it just loses all meaning. And that’s when the crash happens. No one knows what dilution is the tipping point. But it’s getting closer, fast.