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New translation, the Magna Carta

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first print interview with bernanke since appointment to head fed
[12 pages]

“So, what this means is that economic policy, and financial oversight have to take into account all the international dimensions of that. So, for example, on the monetary policy side, we have worked carefully and closely with other central banks to talk about monetary policy in different parts of the world. In fact, during the heat of the crisis in October 2008, the Federal Reserve and five other major central banks cut interest rates together on the same day, as a sign of how committed we were to cooperating on monetary policy." [From sheet 4]

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“ We think the only expansion of authority which we think is appropriate would be to not only banks, but other large financial companies whose failure might pose significant risk to the financial system. That's the extension of responsibility that we think is appropriate” [from page 9]

There are a couple of references to the “too big to fail” problem and “how we must do something”, but not clear solutions.

To quote Bernanke:

“...I want to be very, very clear, too-big-to-fail is one of the biggest problems we face in this country...” [p.10 )

I am of the view that it is a problem without a solution under a government fiat banking cartel and international banking competition.

So I believe this talk to be empty posturing.

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controlling spending and government deficits - historic analysis

This is around 60-70 pages of medium print. Here is its contents page:

  1. Introduction 21
    Background: Spending, consolidation and growth 23
    Theory of the impact of fiscal consolidation on growth 25
  2. Six Historical Episodes 27
    1922-29 —The Geddes Axe 27
    1931 — Balancing the Budget in the face of Depression 32
    1968/9 — IMF Bailout 37
    1976 — Second IMF Bailout in short succession 43
    1980s —Thatcher Medicine and Thatcher Miracle 49
    1990s — Deficit correction, Clarke’s ‘cheerful tightfistedness’, 59
    and the ‘Iron Chancellor’
  3. Six International Episodes 67
    Sweden: 1994-1998 67
    Finland: 1994-2000 72
    Canada: 1994-2000 78
    Ireland: 1987-2000 84
    Germany in the 1990’s 90
    Netherlands: 1983-2000 95

“Fiscal correction should be biased towards spending cuts. Successful consolidations have typically placed around 80% of the burden on spending cuts; 20% tax rises. Britain’s first postwar attempt to control spending, after the first IMF bailout of 1968, was heavily biased towards tax rises and proved unsustainable. In the early 1980s Ireland initially tried to close its deficit with a programme heavily biased towards tax rises – but this strategy had to be abandoned in favour of a “Programme for National Recovery” almost entirely based on spending cuts. Our sample of case studies reinforces the conclusion of previous work by the IMF that, “fiscal adjustments which rely primarily on spending cuts on transfers and the government wage bill have a better chance of being successful and are expansionary.On the contrary fiscal adjustments which rely primarily on tax increases and cuts in public investment tend not to last and are contractionary.” ”


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the web address for this article is

understanding economic multipliers
‘stimulus spending’, a recipe by fools and crooks - you’re being conned!

Brown the Clown and Obama are continually (either foolishly or dishonestly), constantly confusing bank bail-outs (and/or liquidity provision) with ‘stimulus’.

“Never let a crisis go to waste.” Rahm Emanuel

A huge hidden agenda among socialists is to use claims of ‘stimulus’ as a means of grabbing ever more power for government. Of course, you have the Brown the Clown’s lying claim, that ‘everyone’/governments (other than David Cameron) believe the only way to deal with the banking clag-up is huge government ‘borrowing’/spending.

In fact, it is government’s wish to grab more power - they want this spending through huge increases of real taxation. It is government that claims to believe the country/people ‘want’/‘need’ more ‘spending’.

socialist ‘new’ labour’s hidden extra £350 billion tax just this year
why reducing taxes works - laffer curves

These schemes are almost entirely power grabs by socialist governments, not genuine responses to a ‘crisis’.

‘Stimulus’ spending should be assessed by entirely different criteria than keeping the banking system liquid.


When politicians use the word ‘stimulus’, it tends to cover a multitude of different sins.

  • Printing money, that is inflation.
    Inflation steals money from people with savings and those on fixed incomes, and gives it to someone else, mostly the government.
  • Borrowing money
    This shifts money from the future to the present. It means increasing your debt in the future when you may well have to pay it back. Socialist governments tend to use this process to buy votes, especially when near to election time. They often hope that they can get someone else, like ‘the rich’, to pay it back - or perhaps the next generation (see also inflation).
  • Coercion
    You can build a big pyramid or start a big army with conscription. It keeps the nuisances off the street, keeps them busy, gives them basic bedding and food, and stops ‘the unemployment problem’. (See also citizen’s wage.)

As you will see, all these methods of so-called stimulus tend to transfer wealth from one pocket to another. There is not much evidence that they actually produced more, unless you think that having a big pyramid is a cool thing, or even giving your unemployed and their unemployed a useful job shooting at each other, or smashing up houses and factories so that you can rebuild them, thus providing still more employment.

Stimulus is far more relevant applied, as Keynes recommended:

“The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.” [1926]

Employing the unoccupied to weatherproof a million houses, or to build 20 nuclear power stations is suitable ‘stimulus’, giving them billions to sit around is a more dubious enterprise akin to Keynes’ satire.

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory) there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but as there are political and practical difficulties in the way of this, the above would be better than nothing.” #1936]

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The new book, End the Fed by Ron Paul, is a very useful primer on the connection between taxation and government power grabs. in my view, Paul is an extremist and a gold nut, but he does understand the nature of government money cartels and the inflation tax. Thus the first 131 pages are a useful source, but the rest should be read with caution and plentiful salt.

The gold standard, such as Paul dreams of re-establishing, has very dangerous downsides best understood by anyone who has ever played Monopoly. Governments are about the centralisation of power.

“During the time men live without a common power to keep them all in awe, they are in that condition which is called war; and such a war as is of every man against every man.
[Hobbes, 1651]

Sane governments protect you from warring princes and local mafias, but of course governments can be among the worst dangers and oppressors. The trick is to keep governments accountable and under control.

Fiat money is one of the basic/central mechanisms by which government monopolise power. Ron Paul seems to realise this but despite Paul’s romanticism, the alternatives are no guarantee of a new, garden of eden.

Keeping government accountable is your prime duty and survival prerequisite. Gold will not do that for you, any more than socialism will rescue you from your duty.

“The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime, and the punishment of his guilt.”
[Curran, 1790]

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R.J. Barro
“If the multiplier is greater than 1.0, as is apparently assumed by Team Obama, the process is even more wonderful. In this case, real GDP rises by more than the increase in government purchases. Thus, in addition to the free airplane or bridge, we also have more goods and services left over to raise private consumption or investment. In this scenario, the added government spending is a good idea even if the bridge goes to nowhere, or if public employees are just filling useless holes. Of course, if this mechanism is genuine, one might ask why the government should stop with only $1 trillion of added purchases.”

“A much more plausible starting point is a multiplier of zero [he means one]. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP -- consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one.”

“I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.”

“... In any event, when I attempted to estimate directly the multiplier associated with peacetime government purchases, I got a number insignificantly different from zero.” [Quoted from]

End the Fed by Ron Paul

End the Fed by Ron Paul

£14.39 [] {advert}
[] {advert}

Grand Central Publishing, 2009
ISBN-10: 0446549193
ISBN-13: 978-0446549196

end notes

  1. Fiat money is the usual term for monetary systems that are not backed by real assets.

  2. The multiplier (or multipliers) is a useful, but difficult and unstable, concept used by Keynes. It should not be confused with the similar fractional banking multiplier. Essentially, the meaning of the multiplier is the idea that if you spend money, it becomes income to the person receiving it. In normal events, that person will spend the money again, and it will become income to a third person. The parable above of the buried notes is a good first step to grasping the idea.

    It is vital, when handling any such concept, that time frames be carefully defined and attended. Another useful concept in the present kerfuffle over ‘stimulus packages’ is the looming question, “Can governments really spend your money better, more usefully or more effectively than yourself?” Naturally, socialists invariably claim that they can, and usually waste, or pilfer large proportions of any tax for their own back pockets.

    What is ‘waste’? It is probably a bit like a weed, a plant growing where you don’t want it. Considering the multiplier in the context of government spending of your money, the measurement often favoured is “For every pound taken from you and spent by the government, what is the end effect on a country’s GDP?”

    • If the effect of the government spending one pound is a one pound rise in GDP, then the multiplier is said to be one, which can translate into “The government has done no better and no worse than if it had kept out of the road”.
    • If the multiplier is less than one, then the GDP will have been damaged by the government interference.
    • If the multiplier is greater than one, then the taxation may be justified under some judgments.

Now note that the time frame in which the multiplier is assessed is a matter of arbitrary judgment, and there are constant concerns regarding what would have happened if the government had not interfered. Also note that a multiplier can also be assessed betwixt competing ‘investments’, and that the idea of a multiplier is also related to the idea of the velocity of money.
Here is another example on which you can practise.

  1. Taken from a very neat review of Keynes’s general theory. You will see the calculational form of Keynes’s multiplier is similar.

    “And here is the tricky part: the increase in income brought about by an investment is greater the higher the percentage of income that is spent rather than saved. Spending increases the incomes of the people who are on the receiving end of the spending. This derived or secondary effect of consumption is greater the higher the percentage of a person's income that he spends, and so it magnifies the income-generating effect of the original investment. If everyone spends 90 cents of an additional dollar that he receives, then a $1 increase in a person's income generates $9 of additional consumption ($.90 + $.81 [.9 x $.90] + $.729 [.9 x $.81], etc. = $9), all of which is income to the suppliers of consumer goods. If only 70 cents of an additional $1 in income is spent, so that the first recipient of the expenditure spends only 49 cents of the 70 cents that he received, the second 34.4 cents, and so on, the total increase in consumption as a result of the successive waves of spending is only $1.54, and so the investment that got the cycle going will have been much less productive. In the first example, the investment multiplier--the effect of investment on income--was 10. In the second example it is only 2.5. The difference is caused by the difference in the propensity to consume income rather than save it. (No one today, by the way, thinks that investment multipliers are that high.)”


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why reducing income taxes works - laffer curves

A neat little article on the Laffer curve and the relationships between tax rates, growth effects and tax returns in relation to Brown the Clown’s latest class war spasm, increasing basic tax to 50% for those earning over £150,000.

“Well, it's a textbook example of the famous Laffer Curve - the idea that beyond a certain point, increases in tax rates will reduce tax revenue, as individual taxpayers change their behaviour to escape the higher rates. In the words of the Institute for Fiscal Studies, higher income tax rates incentivise taxpayers to "work less, retire earlier, emigrate, contribute more to pension or charity, convert income to capital gains, incorporate, and invest in tax avoidance".” [Quoted from]

Laffer chart based on 2009 UK budget. Image: Institute for fiscal studies
Laffer chart based on 2009 UK budget. Image: Institute for Fiscal Studies [IFS]

The Laffer Curve is based on logic and empiric experience. It is an attempt to estimate government tax takes from various tax regimes. Logically, it is obvious that the tax take will be zero if tax rates are zero, whereas if tax rates are 100%, people will not bother to work for (declared) wages. In the graph above, the blue line represents the government tax take for ever-increasing tax rates if there was no behavioural response.

As we can see in the graph, whereas the IFS (Institute for Fiscal Studies) places the peak of the Laffer Curve for high earners at a marginal income tax rate around 40%, the government places it at well over 50%.

The red line is typical of economic real-world wisdom. But in Britain we have mad socialists running the government, thus they try to convince themselves, and the people, that can go on increasing the tax rate beyond 40% and still obtain increasing tax. They do this in order to hide the reality that their objective is to pander to the envy of their supporters. The reality, as you can see from the red curve in the graph, is that government tax income will actually drop as tax rates are pushed much above 40%. But as usual for socialists, despite economic damage, dogma and perception trump reality.

Notice that this graph applies to income tax rates on incomes exceeding 150,000 per annum, no where near the greatest source of government revenues. Similar curves may be estimated for corporation tax, value added tax and other regimes subject to behavioural change, for example how much work your husband will do for a given return!
See also socialist ‘new’ labour’s hidden extra £350 billion tax just this year.

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And three short films on the Laffer Curve (20+ minutes total) from the Centre for Freedom and Prosperity and the Cato Institute.

film 1 film 2 film 3


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