Tuesday, January 11, 2011

Charles Hugh Smith: Of One Mind Not Fully Known

As I've said before, Charles Hugh Smith is one of my favorite thinkers/authors out there because he is truth seeker, but from time to time I find myself frustrated when he allows his biases to deter him from the truth.  The good news is that deterring him is not the same as stopping him, so I trust he'll soon discover what he has missed.

Today's essay is a perfect example of what I'm talking about.  It is clear from his body of work that Smith is most influenced by the Austrian school of economics, but he is no ideologue, as he demonstrates by seriously considering two schools of economics that Austrians are trained to despise: the Keynesian and Marxist schools.  Indeed, he emphasizes in his essay that there is truth to be found in these schools of economic thought so they should not be rejected out of hand.  He then goes on to get to the topic of the day, which is the hyper-inflation v. deflation debate.  His analysis is logical and spot on UNTIL he introduces an Austrian analysis of the debate, which he lauds as "insightful," and then he falls into the false "government v. bankers"  dichotomy pushed by the Austrian school to ensure that the money supply is privately controlled, which is the very mechanism and basis for the financial corruption that he has so eloquently identified on numerous occasions.

Apparently, the paper concludes that hyper-inflation only arises when politicians (governments, really) control the money supply, a conclusion that is consistent but not co-extensive with Smith's own conclusion that hyper-inflation is always a political phenomenon.  The theory, according to Smith, is that bankers have to plan for the long haul while politicians have "no future beyond four years," so bankers will make better decisions than politicians.  (Puh-lease.  Bankers are more sober and cautious than politicians?!?  Really?)

The problem with this facile theory is that the politicians are primarily beholden to bankers and capital holders.  A more cynical way of putting it, as we've seen demonstrated time and again over the last two decades, is that the politicians are owned by the banks.  Under our current system, money is politics and politics is money, which means that both hyper-infaltion and deep deflation are political phenomena.  See Damon Vrabel's video series for an excellent analysis of how nations are no longer sovereign under the existing global financial empire.

I will admit to knowing about the hyper-inflation of the Weimar Republic, but I can say with some certainty that it didn't harm the major capital holders in Germany.  I'll even go further and argue that, if somebody will look, they'll probably find that hyper-inflation benefitted those same capital holders because it allowed the Weimar Republic to avoid taxing and/or confiscating their wealth, which was most likely held in real assets and precious metals, to pay war reparations. 

So, I'll agree with Smith's conclusion that hyper-inflation can't happen in the United States in view of the fact that so much of the wealth of major capital holders is tied up in U.S. debt and the dollar, but if that fact ever changes, hyper-inflation can and will happen, if it will accrue to the benefit of the major capital holders and the banks.

Why does Smith find the Austrian analysis to be so insightful?  Most likely because it confirms his own similar conclusion, and because he is biased in favor of the Austrian school.  Unfortunately, once we've confirmed what we think we know, we tend to stop thinking about the issue.  As a result, Smith continues to accept the concept of privately-controlled debt-money, the very source of the corruption he decries, unquestioningly.