Tuesday, November 24, 2009

A Pro-Free-Market Program for Economic Recovery

Uncle George Reisman lays out his latest plan to get the world into economic recovery, via various clever Reismanesque ruses, to head us into Uncle Murray's 100% gold reserve standard:

=> A Pro-Free-Market Program for Economic Recovery

Chances of it happening?

Well, as much chance as all British state schools being privatised overnight.

But if we Austrians keep pointing out these solutions to all of these self-made socialist crises, then one day perhaps things might get so desperate that these ideas might actually get an airing.

Yes, I know, it's a slim bet. However, stranger things have happened at sea. What, exactly, I'm not sure. But you gotta keep trying, Ringo, because if Uncle George is cleverer than a hatful of frogs and he's still trying, after all of these years, then the rest of us must follow suit.

Incidentally, check out the following figures while you're reading Uncle George's article: In July 2008, American banks had $45 billion dollars in reserve at the Fed, with just $2 billion in excess reserves, i.e. money they could have lent out without breaking any fractional reserve laws. Basically, the banks were fully loaned out. Today, American banks are holding an eye-watering $1.1 trillion of total reserves at the Fed, with excess reserves at a staggering $1.06 trillion dollars, all of which could be loaned out tomorrow without breaking any fractional reserve laws. Do the words 'Hyperinflationary Nuclear Explosion in Waiting' mean anything to you? I should coco.

It gets better. The old $45 billion in reserves supported $6 trillion dollars worth of American checking accounts. This implies a fractional reserve of 0.75%. Taken to its logical conclusion, if the current $1.1 trillion of new reserves were to be similarly expanded, under the fractional reserve system, and fully loaned out, then American checking accounts would go from $6 trillion dollars, to an incomprehensible $147 trillion dollars. Let me just write that out for you:

=> $147,000,000,000,000 dollars

That number is actually too large to imagine. Let's put it another way. I think we can all imagine a nice white shiny $1 million dollar home somewhere on the coast of Florida, with a nice shiny white motor-boat tied up outside on the waterfront. Now, turn the picture of that home into a pile of cash, perhaps a cube of cash, in $100 dollar bills. This is what that looks like:

Not so impressive, huh? Now let's ratchet that small bag-sized $1 million dollar pile into something a little more meaningful. Let's pump it up into a hundred houses, or $100 million dollars:

Now we need to rack that up into a thousand houses, or $1 billion dollars:

Now we're talking. Remember, that's $100 dollar bills, representing $1 billion dollars. So what does a trillion look like, worth a million such houses (at today's prices)? Your wish is our command:

Notice that the above picture is using double-stacked pallets.

Now all you have to do, is multiply the picture above in your head 147 times, for 147 million waterfront homes at today's prices, and you'll have an idea about how much cash it is now possible for the United States to have, in $100 dollar bills, if their banks lent out all of their available money.

If that's not doin' it for you, here's a graphic representing the total amount of dollar cash currently floating around the US, either as paper notes, or as readily accessible cash in checking accounts:

And here's the amount of cash that could be floating around the US, if the banks lent out everything that they are allowed to lend out:

So now you know why Peter Schiff is recommending that everyone gets out of the dollar.

Crack-up boom, anyone?

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