Helicopter Ben hearts zombies

How soon is the economy here in Nevada — or nationally — going to turn the corner, you ask? When can we expect the tourists and conventioneers to return in the numbers of just a few years ago? Will it be soon, or will it take years?

A category of evidence that we come across each day will answer those questions for you. While it doesn't allow us to pinpoint the exact date, it will certainly alert us well in advance and tell us the recovery is on its way.

The above assertion rests on three assumptions. One is that, for a healthy economic recovery to arise, it must necessarily do so on a foundation of sound policy. The second premise is that, this country being a democracy, a consensus in behalf of such sound policy will have largely become apparent among average voters nationwide. The third assumption is that the political force of that consensus will eventually produce implementation of the new, sound policy.

Currently, the kind of discussion that dominates among talking heads in government and on Wall Street and among much of the electorate is decidedly superficial. We repeatedly hear that we won't get a turnaround until "the housing problem" is fixed, or until "housing recovers." We hear that the heart of the worldwide credit crunch is those nasty "toxic assets" on bank balance sheets, and that once those bad mortgages are somehow sequestered and fenced off, then all will be well. And we hear that the key problem is one of "confidence" — confidence in banks and confidence in non-bank financial institutions. Once confidence is restored, we are assured, then markets will bottom, lending will resume, the U.S. and world economies will revive and our God-given American right to always ascend toward ever-greater happiness and prosperity will snap back into place.

Such conventional diagnoses are less than adequate. In each case, they always beg the key question of causality — a conceptual weakness that reveals precisely why America got into this mess in the first place.

It is widely understood, of course, that the housing problems, the toxic-asset problems and the absence-of-confidence-in-banks-and-financial-institutions problems all have a common source in the activities of the Federal Reserve. However, because of widespread economic ignorance among the voting public and a long tradition of mystification and flim-flummery at the Fed, voters and politicians still continue to defer to Helicopter Ben, even as he spins further and further into outer space and grasps more and more extra-legal power over our national economy for himself.

The fundamental problem with the current Federal Reserve chairman is that he's a classic paper-money crank of the order of John Law. As France's Controller General of Finances in the early 18th Century, Law produced the runaway, currency-destroying hyperinflation of the Mississippi Bubble, which ruined thousands of investors and yielded the subsequent collapse of debt obligations of the French monarchy and an ensuing pan-European depression. After Law, it would be 80 years before France would even dare to again introduce paper money into its economy.

It is true that Bernanke, to all appearances, seems the very soul of mild, professorial and cautious reason. Unfortunately, appearances can be quite deceiving: Someone else who has that particular act down pat, after all, is Bernie Madoff.

Like John Law, Bernanke believes that one can promote trade and resuscitate failing businesses simply by increasing the supply of money and injecting it into the businesses or the economy in general. He confuses genuine wealth or capital — i.e., saved surplus goods — with mere money, the paper pledges to provide such goods. Genuine lending, however, is the flow of real savings. It is not the mere flow of printed (or electronic) paper.

"All that adding more money to the economy will do," notes Frank Shostak, chief economist of M.F. Global and an adjunct scholar of the Mises Institute, "is to weaken wealth generators and thereby reduce the future supply of real savings and weaken future real economic growth." In short, every time Bernanke creates more money out of thin air, he reduces the value of the currency in potential investors' hands. He also emphatically signals that the U.S. central bank is working diligently against people who save — i.e., the very people needed to build up real as opposed to phony capital, and to thus make possible sound lending later.

As during the Great Depression, the Federal Reserve is fighting to preserve the false economic valuations that reflect its own previous mistakes in expanding credit out of thin air. Rather than allow those mistakes — now incarnated in unviable zombie firms and widespread, unrecoverable debt — to go the way of all unsound investments, the Fed continues striving mightily to spawn even more walking dead.

So if you want to know that a genuine economic recovery is on its way, pay attention to the level of public impatience with the current chairman of the Federal Reserve.

When it's become so intense that his days in the job are clearly numbered, dawn will be on its way.

Steven Miller is the vice president for policy at the Nevada Policy Research Institute.