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.For the last partof 1990, the money supply was flat, and the deflationists were sure thattheir day had come at last.Credit had been so excessive, they claimed, thatbusinesses could no longer be induced to borrow, no matter how low theinterest rate is pushed.Economic Ups and Downs 221What deflationists always overlook is that, even in the unlikely eventthat banks could not stimulate further loans, they can always use theirreserves to purchase securities, and thereby push money out into theeconomy.The key is whether or not the banks pile up excess reserves,failing to expand credit up to the limit allowed by legal reserves.Thecrucial point is that never have the banks done so, in 1990 or at any othertime, apart from the single exception of the 1930s.(The difference wasthat not only were we in a severe depression in the 1930s, but that interestrates had been driven down to near zero, so that the banks were virtuallylosing nothing by not expanding credit up to their maximum limit.) Theconclusion must be that the Fed pushes with a stick, not a string.Early this year, moreover, the money supply began to spurt upwardonce again, putting an end, at least for the time being, to deflationistwarnings and speculations.Lesson #6: The banks might collapse.Oddly enough there is a possibledeflation scenario, but not one in which the deflationists have everexpressed interest.There has been, in the last few years, a vital, andnecessarily permanent, sea-change in American opinion.It ispermanent because it entails a loss of American innocence.The Americanpublic, ever since 1933, had bought, hook, line and sinker, the propagandaof all establishment economists, from Keynesians to Friedmanites, that thebanking system is safe, SAFE, because of federal deposit insurance.The collapse and destruction of the savings and loan banks, despitetheir  deposit insurance by the federal government, has ended theinsurance myth forevermore, and called into question the soundness of thelast refuge of deposit insurance, the FDIC.It is now widely known that theFDIC simply doesn t have the money to insure all those deposits, and thatin fact it is heading rapidly toward bankruptcy.Conventional wisdom now holds that the FDIC will be shored up bytaxpayer bailout, and that it will be saved.But no matter: the knowledgethat the commercial banks might fail has been tucked away by everyAmerican for future reference.Even if the public can be babied along,and the FDIC patched up for this recession, they can always rememberthis fact at some future crisis, and then the whole fractional-reserve houseof cards will come tumbling down in a giant, cleansing bank run.To offsetsuch a run, no taxpayer bailout would suffice.222 Murray N.Rothbard: Making Economic SenseBut wouldn t that be deflationary? Almost, but not quite.Because thebanks could still be saved by a massive, hyper-infla-tionary printing ofmoney by the Fed, and who would bet against such emergency rescue?Lesson #7: There is no  Kondratieff cycle, no way, no how.There isamong many people, even including some of the better hard-moneyinvestment newsletter writers, an inexplicable devotion to the idea of aninevitable 54-year  Kondratieff cycle of expansion and contraction.It isuniversally agreed that the last Kondratieff trough was in 1940.Since 51years have elapsed since that trough, and we are still waiting for the peak,it should be starkly clear that such a cycle does not exist.Most Kondratieffists confidently predicted that the peak would occur in1974, precisely 54 years after the previous peak, generally accepted asbeing in 1920.Their joy at the 1974 recession, however, turned sour at thequick recovery.Then they tried to salvage the theory by analogy to thealleged  plateau of the 1920s, so that the visible peak, or contraction,would occur nine or ten years after the peak, as 1929 succeeded 1920.The Kondratieffists there fell back on 1984 as the preferred date of thebeginning of the deep contraction.Nothing happened, of course; and, now,seven years later, we are in the last gasp of the Kondratieff doctrine.If thecurrent recession does not, as we have maintained, turn into a deepdeflationary spiral, and the recession ends, there will simply be no timeleft for any plausible cycle of anything approaching 54 years.TheKondratieffist practitioners will, of course, never give up, any more thanother seers and crystal-ball gazers; but presumably, their market will atlast be over.The Fiat Money Plague71The World Currency CrisisThe world is in permanent monetary crisis, but once in a while, thecrisis flares up acutely, and we noisily shift gears from one flawedmonetary system to another.We go back and forth from fried paper ratesto fluctuating rates, to some inchoate and aborted blend of the two.Eachnew system, each basic change, is hailed extravagantly by economists,bankers, the financial press, politicians, and central banks, as the final andpermanent solution to our persistent monetary woes.Then, after some years, the inevitable breakdown occurs, and theEstablishment trots out another bauble, another wondrous monetarynostrum for us to admire.Right now, we are on the edge of another shift.To stop this shell game, we must first understand it.First, we mustrealize that there are three coherent systems of international money, ofwhich only one is sound and non-inflationary.The sound money is thegenuine gold standard;  genuine in the sense that each currencyis defined as a certain unit of weight of gold, and is redeemable at thatweight.Exchange rates between currencies were  fixed in the sense that eachwas defined as a given weight of gold; for example, since the dollar wasdefined as one-twentieth of a gold ounce and the pound sterling as.24 of agold ounce, the exchange rate between the two was naturally fixed at theirproportionate gold weight, i.e., £ 1 = $4.87.The other two systems are the Keynesian ideal, where all currencies arefried in terms of an international paper unit, and fluctuating independentfiat-paper moneys.Keynes wanted to call his new world paper unit thebancor while U.S.Treasury official (and secret Communist) Harry DexterWhite wanted to name it the unita.Bancor or unita, these newpaper tickets would ideally be issued by a World Reserve Bank and wouldform the reserves of the various central banks.Then, the World ReserveBank could inflate the bancor at will, and the bancor would providereserves upon which the Fed, the Bank of England, etc.could pyramida multiple expansion of their respective national fiat currencies.The whole world would then be able to inflate together, and thereforenot suffer the inconvenience of inflationary countries losing either gold orThe Fiat Money Plague 225income to sound-money countries.All the countries could inflate in acentrally-coordinated fashion, and we could suffer manipulation andinflation by a world government-banking elite without check or hindrance.At the end of the road would be a horrendous world-wide hyper-inflation,with no way of escaping into sounder or less inflated currencies.Fortunately, national rivalries have prevented the Keynesians fromachieving their goal, and so they had to settle for  second best, theBretton Woods system that the U.S [ Pobierz caÅ‚ość w formacie PDF ]