Great article! This type of article is what keeps me coming back to Mises.org. It’s full of insights. The future looks bleak if we can’t rein in the Fed.

The buying of shares (either to supposedly finance future government pension “social security” and other welfare programs, or by the central banking system) has long been a “back door nationalization” idea of the left.

I doubt whether many big corporations will complain about it.

After all most stock is already owned by pension funds and other insititutions anyway (thanks to various regulations and the effects of income tax, capital gains tax and inheritance tax), so corporate managers may not think that government ownership of shares would be that different.

Also many corporate managers do not actually like real (i.e. individual) shareholders – such people are often seen as a problem (asking nasty questions about the level of executive pay and stock options…. and the true state of debt in the company and other matters concering the books).

Such things as the 1967 Williams Act (hitting the power of shareholders in terms of their ability to sell the company before the managers can sabotage a takeover) were supported by a lot of corporate managers.

Of course honest managers exist, but they can be kept quiet by the “chilling effect” of government regulations and taxes.

“Keep quiet or we will hit your company (or you as an individual)with an investigation” is an effective government method.

With tax and other regulations being as complicated as they are, most people and organizations have violated some regulation or other (particularly as some regulations contradict other regulations – so to obey one means to violate another).

And even if an organization or individual has (by some strange chance) not violated any regulations at all, an investigation (with the freezing of assets and so on) can destroy most organizations or individuals.

The left is far from dead (after all they control most of academia – and by so doing have vast influence on the students who become the media), and President Bush (wild spending jerk that he is) does NOT follow nearly as bad a policy line as the American left would want.

People who think that the present is bad will have a big shock if the Democrats take even one house of Congress in November (let alone both).

There will be endless “investigations” and demands for “democratic control” of various aspects of the economy.

Do the Republicans support freedom? Of course not.

But the modern Democratic party is a creature of academia and the media – it has a fanatical ideological hatred of freedom (which the corrupt Republicans do not have, they might even reduce a bit of statism – if they thought there were votes in doing so).

This is not “just” a matter of taxes, new Welfare State programs, regulations, and government ownership. Even free speech and other “civil liberties” (which are supposed to be supported by the media and academia) are actually hated by the modern left. “Hate speech” will not just cover racialists, it will cover the “homophopic”, or people who are anti femminist, or are anti the “postitive” (i.e. welfare and quota job) rights of any group, and anybody who opposes “economic justice” or “economic democracy”.

There will be plenty of talk about “diversity” but no diversity of OPINION will be allowed in any walk of life.

People who doubt all this have only to wait till the Democrats start taking bits of the government.

Absolutely brilliant article, well thought out, well presented and well written.

The Central Bank will always be the slave of the central planner, and not vice-versa. Thus when an economics problem is solved politically the downside is unlimited.

Even Central bankers by virtue of a lot of education are intelligent and know (like Greenspan) what they are really doing (and that it is wrong).

The slippery slope they trod is that what they will do something they know is wrong in the short run because in the long run a greater good will occur. Which is logic along the lines that a painful suture will close a wound which allows healing to occur and prevents infection.

The flaw here is that the crises never end and the time series of doing what one knows is wrong increases monotonically in time.

Thus the current Bush administration has created as much public debt as the all other Administrations in history. For those that are mathematically inclined the series is diverging and that is always a bad thing.

The Benefits of the Postal System in Every Industry!
I agree with the comment that central banks investing in corporate stock is a back door route to nationalizing industries. I have anticipated such a trend ever since the proposal to create stock portfolios with social security money.

As mentioned, the Fed will turn on the presses, buy up more and more public corporations, and the nation will convert from fascism to socialism. Then the corporations stagnate under the inevitable mismanagement characterizing all government intervention. Ambitious people will want to start competing private companies that will easily provide better products and services for lower prices. Ah, but that would put the government owned businesses out of business, so laws will be passed prohibiting competition.

Our entire economy will be run just like the Postal System where we are compelled to use the government sponsored entity and not allowed any alternative. But at least we will have those profitable investments to look forward to…oh, wait, they won’t be profitable any more! Not only will we have impoverishment to look forward to in our sunset years, we will be able to prepare by adjusting to it right now.

And it can be ushered in by Conservatives as a fiscally responsible way to invest your tax dollars. The only reason Liberals are complaining is that they aren’t going to get credit for enslaving us. What a disappointment to spend decades working to overthrow the nation and then have victory stolen from your grasp by a sly deceit! The people rebelled against the bald-faced liberal direct assault and rushed into the arms of the soto voiced seductress of conservatism. A cunning plan worthy of luciferian accolades.

A note on a note of Robert Blumen’s article:

“[4] In the United States, the tax revenues used to pay the debt are paid to the central bank. Since the central bank accounts for its own account with itself, these revenues are journalled into this account. At the end of the year, the Federal rebates all profits back to the US Treasury, so in the end a big nothing has occurred.”

This is not really true because the central bank hide the seigniorage by posting the currency they print AT FACE VALUE in the Liabilities side of the balance – thus hiding the monetary rent. Banknotes at face value instead of their printing costs in the liabilities is a fraud because those banknotes will be NEVER paid back at face value to anybody. The FACE VALUE of banknotes has to be posted in the profit side of the balance AND THEN returned to the US Treasury to have a BIG NOTHING occurring as the author pretend.

Good article – but before you believe the central banks’ justification for leasing gold, you might want to check the gold lease rate.

For a year-long lease, it’s currently about 0.09%. Note, this is not 9%. It’s 0.09%. Also, of course, in exchange for their gold, what the CBs get is their own paper – coals, as it were, to Newcastle.

In practice, leased gold is seldom returned. Expired leases are routinely rolled over. Lessors (bullion banks) sell the gold into the jewelry market, where it fills a large deficit between industrial demand and new mining.

Nothing about this is obviously irregular, except that it rather contradicts the CBs’ official motivation for holding onto the barbaric relic – which is that it may be useful in a financial crisis. A financial crisis, of course, is about the last thing that would cause leased gold to magically reappear.

If you find these facts puzzling, there are a lot of good essays at goldensextant.com that may clear up some of the confusion.

This is many times worse than central planning. It will be the new feudalism! Everyone with a mortage will become serfs.