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by Ron Ewart, ©2012

(Aug. 5, 2012) — “If Congress can employ money indefinitely to the general welfare … the powers of Congress would subvert the very foundation, the very nature of the limited government established by the people of America.”   — Alexander Hamilton

NOTE:  In the interest of a full disclosure, we are not economists and what we present here is the result of long years of observation, experience, intellect and analysis.  If anyone tells you that the economy is complicated they are lying to protect their turf and to keep you confused and thinking that you don’t have the intelligence to understand what they know.  That is called entrenchment.  Over-educated academics, narcissistically obsessed with their own so-called “wisdom”, tend to fit into this category.  Are there intricacies and variables in economics, of course?  But it only really gets complicated when government and the central bankers stick their unwanted noses into the brew.  It is our intent here to make it understandable for normal folk.  We deal in pluses and minuses that are easy to understand.  Those long, complicated, economic Calculus equations we will leave to those who love to decipher Egyptian hieroglyphics.  Economists are like those climate scientists that try to forecast the weather out 100 years, when they can’t even get it right for one day, much less one week, or one month ….. or one business cycle.  Commerce, business, economies, governments, central bankers ….. and the weather are in fact a “non-linear dynamic system.”  The governments and bankers “tweak” the “system” to obtain a desired result [usually a political one] and almost always end up creating serious unintended consequences (i.e., subprime meltdown, Community Reinvestment Act, stimulus bills, housing bubble, Obamacare, bailouts, quantitative easing, etc.).

During the days before the American Revolution, the colonialists printed up a medium of exchange (denominations of money) that the people could use in exchange for goods and services.  The colonies only printed up enough of these denominations to keep in balance what was necessary to maintain a healthy economy.  When King George III and the Bank of England got wind of this, they were afraid that the colonials would try to pay their taxes to the realm in the money (script) of the colonies.  So the King issued a decree to their American subjects that all of the King’s taxes would have to be paid in silver or gold coin, with no exceptions.  This quickly depleted the gold and silver coin of the 13 colonies, leaving nothing to back up their script.  The economy of the colonies quickly collapsed as the gold and silver dried up, which in part led to the revolution ….. and to the birth of American freedom.

As the colonials discovered the hard way, money in circulation, backed up by a tangible asset, is an absolutely essential element in maintaining a working and growing economy.  If there is too little money in circulation, economies grow weak and stagnate.  If there is too much money in circulation, inflation can quickly raise the cost of goods and services dramatically and send the economy reeling out of balance.

For the last 3,000 years, central bankers, in collusion with governments, have controlled the supply of money in circulation.  Some call this collusion between the central bankers and government an unholy alliance.  If the central bankers don’t get what they want, they can dry up the money supply.  (NOTEThis actually happened when President Andrew Jackson threatened to dissolve the central bank that controlled America’s currency during that period.   Jackson got his way but not before the central bank got its pound of flesh in revenge, which resulted in a nationwide recession.)  If the central bank needs to protect its investments to governments that go into debt, they can dump (print) more money into circulation to create inflation.  Yes, this is an over-simplification of the process, but it is sufficient to make our point.

The money in circulation not only acts as a medium of exchange for goods and services by the people; it also funds the government.  Thus, if the government extracts too much money from the private sector in the form of taxes, the money in circulation to pay for goods and services is less and a recession or depression can result.  The opposite is also true.  If the government takes less in taxes, that means there is more money in circulation to purchase goods and services and the economy can grow along with more jobs.  Government regulation plays a part in the equation, but yes, it is that simple.

Unfortunately, the over-educated academic elites erupted in the middle of the 20th Century and convinced the Federal Reserve and the American government to follow an economic plan developed by another over-educated academic elite, economist John Maynard Keynes.  The new plan became known as Keynesian Theory or Keynesian economics.  Most Western countries adopted the plan.  Most Western countries that did adopt it, including America, are paying a serious price for that decision right now.

“Advocates of Keynesian economics argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, particularly monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were first presented by Keynes in his book, The General Theory of Employment, Interest and Money, published in 1936. The interpretations of Keynes are contentious and several schools of thought claim his legacy.”   (you can read more at this link:  http://en.wikipedia.org/wiki/Keynesian_economics)

Essentially the theory went like this:  The government could smooth out the highs and lows of the economy by artificially pumping money into the economy, or taking out money from the economy, through the central bank (think Federal Reserve).  The government quickly learned that they could accomplish two things by pumping money into the economy.  The first “thing” came in the form of pumping money into welfare, public works projects, social security, New Deals, food stamps, Pell grants, student loans, President Johnson’s Great Society (they came later) and a whole host of other wealth transfer methods using taxes and/or newly printed money from the Federal Reserve.  The second “thing” was that by so doing they could buy votes from those who were the recipients of the wealth transfers.  (Clever, these liberals.  Yes, most of these treasury-busting social plans come from liberals to buy votes.)

A very close friend of ours described Keynesian economics thusly:  “A person dips a bucket into the lake and fills it.  He then goes around to the other side of the lake and dumps the water back into the lake, spilling a lot of the water in his trek around the lake.”   This is not a zero sum game.  The spillage is what government takes for the cost of its services and for the waste, fraud and abuse it induces in transferring the water in the bucket around the lake.  There is no gain, and in fact there is a net loss.  The loss can be significant and usually is.  As government grows, so do the losses.

To further complicate economies and money, the central bankers of the world decided a long time ago to add a wrinkle to the banking system.  They instituted a process called Fractional Reserve Lending, which allows the banks to loan out 10 or more times the deposits they have in their banks.  They make lots of money and the system works fine, that is, until a significant percentage of the loans they have made go into default; you know, like the subprime meltdown or government overspending.  Then the banks are scrambling for liquidity and their only recourse is to borrow or print more money to solve the liquidity problem.  Printing more money can lead to runaway inflation.

On top of this central bank nonsense, there is Obama’s flawed “Tax-the-Producers” plan.  It is estimated that 47% to 50% of the adult population pays no taxes at all.  They are a net drain on the money in circulation, funded by the taxes government extracts from the producers.  It is also estimated that 10% of the wage earners and wealth producers in America fund 70% of the taxes.  This hardly represents equal protection under the law as required by the Constitution.  The graduated income tax (or progressive income tax system) is a socialist tool to redistribute wealth.  It rewards sloth and penalizes achievement.  Government, the media and academia have convinced a naive populace that this is only “fair,” without regard to whether it is constitutional or economically sound.  It isn’t!

Norway, an entirely socialist, highly taxed country, only exists in a stable economic state because of oil revenues.  Norway’s system will collapse when oil revenues dry up, as other socialist government systems dry up when they run out of “other people’s money.”  This will happen in America eventually, but because we are so wealthy, we can last longer than other countries.

Every dollar the government (Obama) takes out of the private sector to fund the 47% that aren’t paying taxes is money that cannot be used to buy goods and services by the people in the private sector.  If the people can’t buy goods and services because there is insufficient money to buy those goods and services, the producers, the manufacturers and the service providers will not produce, manufacture the goods, or provide the services and thus will not create any jobs.  In reality, they will shed jobs.

Now if you listen to ex-speaker Nancy Pelosi, government welfare/transfer payments to the 47% who don’t pay taxes,spurs the economy, which brings us back to the bucket and the lake scenario.  Not only is Pelosi’s explanation ludicrous; it’s insane, which pretty-well sums up Pelosi’s thought processes.

But ladies and gentlemen, it gets even worse.  The government makes promises to the people (for votes), but since there isn’t enough tax revenue to pay for their promises, the government has to borrow the money from the central bank or from foreign governments to fund the promises.  The more promises the government makes, the more money it has to borrow.  But like the trip around the lake where the water is spilling out of the bucket, there is a cost for government to borrow the money.  It is called interest.  If the government borrows too much money and is at risk of not being able to pay the principal of the loan or the interest accruing on the loan to the lender because it is on the edge of becoming insolvent, the lender raises the interest rate in reaction to the rising risk.   The higher the government debt and deficit, the higher the interest rate on the loans.  So borrowing by government induces another cost (interest) and takes more money out of circulation from the private sector.

Then you enter into this mix draconian tax policies to fund irrational compassion and the guilt that government places upon you if you suddenly decide you don’t want to fund their definition of compassion anymore.   You are accused of denying food, water and milk to babies, free lunches to “starving” kids and forcing grannies to die in the streets (or pushed over a cliff), all because of your “Scrooge” stinginess.  They say you aren’t contributing your “fair” share, but they never will say what that “fair” share should be.  Actually, if the liberals had the power to take it all, they would.  They don’t much care about simple economics, jobs, or freedom.  They only care about buying votes with your tax money and what they can borrow from central banks and foreign governments, at your expense.  They aren’t compassionate; they are just thieves (junkies) to fund their insatiable, lustful drive for more power, not unlike a drug addict stealing to fund his habit.

Thus, Obama’s (liberals’) tax-the-producers plan is plain and simple grand theft, with the selfish motive being to buy votes to stay in power.  They don’t care that they are sucking money out of the private sector and reducing the private sector’s ability to create jobs.  They don’t care that they are taxing the producer to the point the producer loses an incentive to produce.  Celebrated Russian-born author Ayn Rand (“Atlas Shrugged”) predicted this would happen clear back in 1957.

Liberals, aided and abetted by the Federal Reserve, are “tweaking” this non-linear dynamic system (the American economy) for selfish, political reasons and constantly creating serious unintended consequences in the process.  The more money liberals steal from the private sector, the more America’s economy becomes stagnant and lackluster and the fewer jobs it can produce.  This isn’t rocket science, folks.  It is just plain, easy-to-understand logic.

The Parallax Prophecies” predicts that as long as liberals are allowed to continue their scheme of grand theft for votes, the longer America will languish in economic doldrums, until finally it collapses under the weight of its rising debt into inescapable bankruptcy and third-world status.  As long as there is “feed” in the bird “feeder” and politicians hooked on the sweet aroma of “power” brought to them by the vote of the “birds,” there is no political solution.  Politicians who promise to cut will be quickly replaced by politicians who will keep the bird “feeder” full, that is, until the politician runs out of bird feed. It’s a slow-moving avalanche, but an avalanche nevertheless, and an avalanche stops only when it hits bottom.  The final result could easily lead to America and its constitution being dissolved and merged into a socialist-run, one-world government.

That is what is on the line, ladies and gentlemen, in simple, layman’s terms.  It is nowhere near as complicated as the over-educated academic elites will tell you.  But they know that if they (government, academics and the media) can make it complicated, most folks will turn away and cease paying attention, letting the chips fall where they may.  In this case, however, the “chips” are nothing less than the complete loss of American freedom, liberty and sovereignty.

Ron Ewart, President


P. O. Box 1031, Issaquah, WA  98027

425 837-5365 or 1 800 682-7848


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