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Saturday, July 27, 2013

Unemployment



March 8, 2010 by · Leave a Comment 

By Howard Katz, Kitco

Well, the train is pulling out of the station.  Gold has said goodbye to the $1,000 level and is off for northern climes.  It is not your last chance to get on board, but it is your last chance to get on board at these low, low prices.  The hard analysis of the past few months has been identifying the intermediate bottom, but now that that is in it is time to step back and once again focus on the big picture.  Friday’s Wall Street Journal has an excellent article on unemployment and the “minimum wage” law, and this is a very good time to discuss this most important subject.

The subject of unemployment is the centerpiece of our modern economy.  Let us imagine an economic discussion between a “liberal” and a conservative:

“Liberal:”  I am a sensitive, caring person.  I feel the pain of the lower members of society, and I am on their side.  I am in favor of all measures intended to reduce unemployment.

Conservative:  That is very commendable.  So you go down to your local soup kitchen and devote hours each day to helping the poor?

“Liberal:”  No, of course not.  But I favor social measures to raise these people up to a higher level.

Conservative:  Ah, I see.  You favor giving my money to the poor.

“Liberal:”  You selfish monster, rugged individualist.  How can you look yourself in the mirror in the morning?

Conservative:  Oh, I’m sorry.  I’m sorry.  I’m so ashamed.

The reason that unemployment is so important is that, while it seems to be a political or moral issue, it is also an economic issue.  And in fact it is the crucial economic issue of our age.  As I have noted in the past, Franklin Delano Roosevelt was a Wall Streeter.  In the 1920s, he was the manager of a vulture fund (so called because it swoops down on troubled companies and gobbles them up).  On his first day in office, he rammed through legislation to give the power to create money to the commercial banks (working hand in glove with the Federal Reserve).  It was passed without hearings in one day (illegally), and members of the House of Representatives did not even have copies of the bill to read when they voted on it.

FDR’s objective was to help his Wall Street buddies.  He knew (from the experience of WWI) that the issuing of new money by the banks also helps their corporate loan customers, and this is done at the expense of the working people, who suffer a decline in their real wages.  In short, FDR wanted to rob from the poor and give to the rich.

If this is what you are trying to do, then you naturally can’t tell anybody.  And the well-known positions of the New Deal – that it was robbing from the rich to give to the poor and that it was the party of the working man – were blatant lies.  The conservative opponents of FDR were unable to counter his policies in the public mind because they were afraid to penetrate the mask of altruism which he employed.

During WWI, prices in the U.S. had doubled.  This had caused a significant decline in the real wages of the average working man.  At that time, almost every American was saving for retirement, and the depreciation of the currency sharply reduced the retirement savings of the average American.  The Republicans of the day arose as the champions of the working man.  They adopted the policy of the “good 5 cent cigar,” which meant a reduction in the money supply and prices back to the levels of 1914.  This policy was successful, and prices (Wholesale Price Index, or what we today call the Producer Price Index) by 1933 were back down to their level of 1914 (and 1793).  America had experienced 140 years of stable prices, and the savings of the average Americans were restored to their pre-World War I value.

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