Month: April 2011

Syria: Nowhere Near Regime Change

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Srdja Trifkovic offers trenchant analysis on world events for this reason: he is not bound to the liberal/neo-con vision of American foreign policy that justifies the invasion and domination of sovereign nations under the rubric that behind every dictator lies a nascent movement of political liberty waiting to emerge. This view is misguided idealism and naivete at best, cynical opportunism at worst, and it afflicts Democrats and Republicans alike. (It’s been the sum of liberal thinking since Viet Nam and maintained by neo-cons when moving over to the Republican side.)

The problem is that “regime change” affects in catastrophic ways the minorities in the countries where dictators are overthrown, including Orthodox Christian minorities in the Middle East who otherwise live in relative safety. Last month I heard William Krystol (a dean of the Washington neo-con establishment; Charles Krauthammer is another) urge American forces to enter Syria to topple the government. He had no idea what kind of government would replace it (not to mention that putting American lives as risk comes very easy to him) but anything is better than the present regime he argued.

Trifkovic explains below why that view is not only wrong-headed, but dangerous.

Source: Chronicles Magazine | Srdja Trifkovic

“Unrest in Syria has discomforted rather than shaken the regime of Bashir Al-Assad,” I wrote in the May issue of Chronicles (Cultural Revolutions, p. 6). “On current form it is an even bet that he will survive, which is preferable to any likely alternative.” The violence has become far worse since the editorial was written in mid-March and the regime looks somewhat shaken by now, but the overall conclusion still stands.

What was “last but not least” a month ago needs to be stated first now: the army and the internal security apparatus remain reliable in spite of several weeks of intense pressure. Contrary to the protesters’ claims of a split within army ranks, the soldiers are loyal to Bashir and to the regime—rather than to the Army as an institution (like in Egypt), or to whoever appears to be winning in the streets (like in Tunisia). The soldiers appear singularly unintimidated by mob violence, which is often instigated by the Islamists who treat “martyrdom” as an essential element of their destabilization strategy. The Syrian deaths are now in the low hundreds. This is well below the bimonthly score of our NATO “ally” Turkey during its clampdown on the Kurds in the 1980s, and less than the death toll of a single day of rioting in Saudi Arabia in 1987.

Less dependent on foreign countries than either Egypt or Tunisia, Bashir is virtually immune to U.S. pressure. Alarmed by the misuse of the UN Security Council Resolution 1973 by NATO as a quasi-legal tool of attempted regime change in Libya, China and Russia have successfully blocked an initiative by the U.S. and some of its European allies for the UNSC to condemn the Syrian government’s “attacks on peaceful protesters.” The regime in Damascus is certain there will be no Operation Libyan Freedom, and it is correct to make that assumption. It is also mindful of Qaddafy’s predicament when faced with Western demands and pressures.

Bashir is potentially sensitive to EU (especially French) sanctions, but he would rather risk such sanctions than agree to a string of unreciprocated concessions on the short road to self-annihilation. He can learn from the mistakes of Ben Ali and Mubarak. The first lesson is not to panic and not to appear weak. Bashir is making some concessions—such as the ending of the state of emergency and the promise of multi-party political system—but at the same time the authorities in Damascus are demonstrating “that they have the capacity for so much force” that they don’t have to use it all at once. We are nowhere near a genuine nationwide revolt yet, and the regime is nowhere near collapse.

Bashir’s major advantage is the absence of coherence and clarity among his opponents. He faces an enigmatic opposition movement, amorphous and apparently leaderless. It is conceivable that the opposition as a whole is more popular than the regime, but it is heterogeneous. There is the Muslim Brotherhood and several Ikwani splinters, as well as Saudi-supported Salafi groups, there are two armed communist factions and an array of other leftist secularists, there are Kurdish separatists, and other regional militias are beginning to emerge. Even if there were a free election, Bashir’s Ba’ath would likely remain the strongest single party.

In case of Bashir’s collapse the final outcome would be a fundamentalist Sunni regime controlled by the Muslim Brotherhood. The standard chant of Bashir’s opponents, “Allah, Freedom, Syria,” indicates the order of their priorities. Far from being latter-day Jeffersonians, they demand “freedom” from a modernizing, secularist government that has successfully kept political Islam on a tight leash for some decades now. It is therefore self-defeating, but sadly not surprising, that the U.S. appears actively engaged in encouraging an eventual regime change.

The prospect of a fundamentalist victory strikes horror into the hearts of Alawites, Druze, Christians, and secularists of all hues, who provide the bulk of government cadres and a third of Syria’s population. Many of them would prefer civil war to a regime change. The growing middle class—which includes many prosperous Sunnis—is also loath to see their country become more akin to the Kingdom of Saudi Arabia. The dislike of a common enemy can be a powerful bond, and Syria’s assorted heterodox Muslims, secularists, Sunni moderates and non-Muslim “infidels” know that they need to hang together with Bashir. Otherwise they are likely to hang separately and rapidly disappear, which is exactly what happened to Iraq’s previously stable and prosperous Christian community in the aftermath of the U.S.-led 2003 occupation.

The protesters capture the headlines but Bashir remains popular with a large segment of the population. This applies to the young, who account for more than a half of Syria’s 24 million people and many of whom have taken advantage of his economic liberalization over the past decade. They see the termination of the decades-long state of emergency as a key step on Bashir’s reformist path. “Syrians have two roads to choose from — both being calculated gambles,” the country’s leading author and commentator Sami Moubayed wrote a month ago. They either give Bashir the benefit of the doubt, or they entrust their future to a street movement that doesn’t have a clear command, vision, or agenda.

Some foreign proponents of Bashir’s downfall use the standard rhetoric of “democratic” regime change but do not give a hoot for what “the people” actually want, or what is optimal for the region’s long-term stability. It appears that they want to see him replaced by a hard-core Islamist regime in order to ensure that Syria becomes and remains weak and divided. Caroline Glick thus argued in The Jerusalem Post that Syria led by the Brotherhood would be no worse than that led by Assad. “What would a Muslim Brotherhood regime do that Assad isn’t already doing?” she asked. “At a minimum, a successor regime will be weaker than the current one. Consequently, even if Syria is taken over by jihadists, they will pose less of an immediate threat to the region than Assad. They will be much more vulnerable to domestic opposition and subversion.”

This is a remarkably short-sighted view. On current and recent form Bashir is not a threat to the region, “immediate” or otherwise. A Muslim Brotherhood regime would do all sorts of bad or unpleasant things that he isn’t doing. Bashir and his father have kept peace on the Golan Heights for almost forty years. An Islamist Syria would be unlikely to follow suit; its cue would come from the Hamas-ruled Gaza, Kassem rockets included. An Islamist Syria would become a stronger link in the Iran-Hizballah axis than Assad had ever been. If there is a Syrian civil war instead, it would spill over into Lebanon and Jordan immediately and into the Palestinian Authority soon thereafter. The region would become less stable than at any time since 1947.

None of these alternatives to Bashir are more desirable than his survival. His present connection with Iran is neither natural nor inevitable. He is a secularist with Alawite roots, whereas Ahmadinejad is a millenarian Shia visionary. Bashir may be ready for all kinds of deals—peace with Israel included—in return for Washington’s recognition of the legitimacy of his regime. He should be tested, because the road to Damascus cannot and should not lead through Mecca.

Religion and Economics: A Review of AEI’s Common Sense Concept Series

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Over the last several years I find myself more and more being drawn more into conversation about religion—specifically, Orthodox Christianity—and economics. Originally, my interest in the economic side of the conversation was minimal. Embarrassing though it is to say now, I only took one economics class in college and while I got a “B” I was an indifferent student of the subject.

Thanks to personal friendships I’ve discovered the work of economists such as Ludwig von Mises and Fredrich A. Hayek—two dominate voices in the Austrian School of Economics. Even here though my interests were, initially at least, not so much in policy as methodology; unlike the quantitative and empirical approach I studied in college, the Austrian school conceives of economics more along the lines of the qualitative approach at the center of human science movement. This qualitative approach to economics has resulted in some interesting, and to my mind extraordinarily helpful and insightful, research into religion by scholars such as Laurence Iannaccone and Rodney Stark.

Among other things, the economic study of religion helps us understand why pluralism is good for religion in general but to the disadvantage of some religions in particular. Ironically, the free market in religion is harms those liberal religious communities who value cultural pluralism and economic liberalism (in the contemporary American sense) but are suspicious, and even overtly hostile, to economic capitalism. On the other hand, those religious traditions that resist cultural pluralism and contemporary liberalism—but who often, though not universally—favor a free market approach to economics are the main benefactors of the free for all that characterizes the American religious landscape (see for example, Iannaccone, 1994).

Through this, circuitous route, I have lately come to an interest in economic public policy. Unfortunately such an interest is usually greeted with something less than enthusiasm—at least when (as in my case) you are an Orthodox priest. At the risk of making a gross generalization, clergy are typically as ignorant of economics and business as economists and business people are of moral theology and the ascetical tradition of the Church. Since I’m trading in stereotypes already, I would say that discussions between theologians and economists break down quickly since—intentionally or not—theologians assume economists are wicked even as economists assume that theologians are ignorant. Representatives of the two disciples rarely understand each other because they rarely have even a basic grasp of the other academic discipline and the kinds of questions and concerns that its scholars seek to address.

This is why three small books published by the American Enterprise Institute are so welcome. The books (P. Wehner & A. C. Brooks, Wealth & Justice: The Morality of Democratic Capitalism; A. J. Pollock, Boom & Bust: Financial Cycles and Human Prosperity; S. F. Hayward, Mere Environmentalism: A Biblical Perspective on Humans and the Natural World) are part of AEI’s Common Sense Concepts series. They’re all short—each took just an afternoon to read—introductions to basic ideas in economics. What is especially important is that they do this in a way that takes seriously Christian moral concerns. Meant primarily for college students and written from a broadly Evangelical Christian perspective, singularly and together they offer a good ethical and practical defense of democratic capitalism.

That said though a defense of the American model of democracy and of the free market, these works do not allow either politics or economics to drive the conversation. Rather both are examined soberly in light of “merely Christianity.” I think all the authors would all acknowledge, as Wehner and Brooks do explicitly in their book, that “capitalism, like American democracy itself, is hardly perfect or sufficient by itself” (p. 8). Both require “strong, vital, non-economic and non-political institutions—including the family, churches and other places of worship, civic associations, and schools—to complement,” sustain and (when needed) reform them.

But this symphonia is impossible without “an educated citizenry.” Such an education must be more than technical—essential though a sound technical foundation is. To fulfill the vision sketched out in these three books assumes that we possess personally what Peter Kreeft (1992) might call the “soft” virtues “such as sympathy, altruism, compassion” as well as the “hard” virtues of “self-discipline, perseverance, and honesty.” Like technological skill, personal virtue alone is insufficient. We need not only healthy, robust and vibrant families and churches, but also a political culture that supports and abides “by laws, contracts, and election results (regardless of their outcome). Without these virtues, capitalism [and democracy] can be eaten from within by venality and used for pernicious ends.”

Why are personal virtue and the rule of law essential? Because:

…capitalism, like democracy, is part of an intricate social web. Capitalism both depends on it and contributes mightily to it. Morality and capitalism, like morality and democracy, are intimately connected and mutually complimentary. They reinforce one another; they need one another; and they are terribly diminished without one another. They are links in a golden chain (p. 9).

As both an Orthodox Christian and a social scientist, seeing democratic capitalism in this way helps me understand how the ascetical and liturgical tradition of the Church can make a contribution to American civil society.

Especially for St Maximos the Confessor and St Gregory Palamas, the ascetical struggle does not extinguish desire (i.e., self-interest) as much as does purify it. As St Augustine argues, prayer, fasting and almsgiving teach me to order rightly the different elements of my life in light of the Gospel; asceticism points me beyond myself to Christ, helps me to love Christ, and in Christ to love my neighbor. Just as asceticism purifies my desires, the Church’s liturgical tradition provides me with a sense of the larger, eschatological context within which I live my life. Apart from such an eschatological experience, I will invariably and necessarily succumb to the temptation to take and make ultimate rather than “lay aside the cares of this life” as we hear in the Cherubic Hymn.

Wehner and Brooks are correct, capitalism and democracy “part of an intricate social web.” Understanding this social network requires not only personal virtue and just laws, but the eschatological vision that we receive in the sacraments and which we constantly accept and embody in the ascetical life.

In Christ,

+Fr Gregory

Work Cited

Iannaccone, L. R. (1994). “Why Strict Churches Are Strong.” American Journal of Sociology, 99(5), pp. 1180-1211.

Kreeft, P (1992). Back to Virtue: Traditional Moral Wisdom for Modern Moral Confusion. San Francisco: Ignatius Press.

Orthodox Churches Object to National Identity Cards

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First of all, let’s dispense with the pejoratives:

Conservative and nationalist wings within the churches have held demonstrations in Athens and Moscow and claim that the cards will compromise national and religious identity. Many have gone so far as to say that identity numbers such as 666 are the “mark of the beast” from the Book of Revelation, the final book of the New Testament.

Archimandrite Iannuarii Ivliev, a professor of biblical studies at the St. Petersburg Theological Academy told the May edition of Neskuchny Sad, a Russian Orthodox magazine, that the obsession with symbols such as 666 are the result of a primitive interpretation of the Book of Revelation.

All that might be true, but it is beside the point. Let’s examine instead the salient point:

Patriarch Kirill II of the Russian Orthodox Church told a meeting of the Bishop’s Council of the Russian Orthodox in February that “the church understands the position of people who do not wish to be subject to control that makes it possible to gather all-encompassing information about their private life, and could in the long-term be used to discriminate against citizens based on their world view.”

I’m with Pat. Kirill on this one. Why would Europeans want to relinquish all their private information to EU bureaucrats? Think of it this way: Do Americans want all their health information open to committees of bureaucrats appointed by such people as HHS Secretary Kathleen Sebelius, Hillary Clinton, John Kerry, or Barbara Boxer and the like? I don’t. And what happens if radical secularists gain control of the government? What happens if the moral foundation of culture is inverted and Christian values are outlawed, and action against the outlaws will appear the rationale and sane action to take? This is precisely Pat. Kirill’s warning and it is one we need to think long and hard about.

Source: The Christian Century | Sophia Kishkovsky

Moscow, April 26 (ENInews)–The Russian and Greek Orthodox churches are objecting to plans in both countries to introduce electronic national identity cards intended to streamline bureaucracy and, in the case of Greece, facilitate integration into the European Union.

Church officials are demanding close study of the cards and asking that authorities make them optional. They say that the personal and financial information that would be consolidated on the microchips in the cards could be manipulated to discriminate against believers.

In an interview with Rossiiskaya Gazeta, an official government newspaper, earlier this month, Metropolitan Hilarion of Volokolamsk, chairman of the Moscow Patriarchate’s Department of External Church Relations, said: “Credit cards, which a person uses to take money from a bank machine or for payment in a store, are one thing, but a personal card in which all the information about a person’s life and activities will be entered, about his bank accounts, health and travels is a different matter. These are different grades of state control over people.”

Conservative and nationalist wings within the churches have held demonstrations in Athens and Moscow and claim that the cards will compromise national and religious identity. Many have gone so far as to say that identity numbers such as 666 are the “mark of the beast” from the Book of Revelation, the final book of the New Testament.

At a demonstration in Moscow on 16 April, Orthodox nationalists joined forces with members of the Communist Party of the Russian Federation. The Communists also oppose the Universal Electronic Card (UEC), which is scheduled to be introduced in Russia next year.

Segodnia.ru, an Internet publication that often covers religious and nationalist issues, commenting on the demonstration, said, “the introduction of the UEC makes it possible to build an unheard of, super-totalitarian electronic dictatorship, in which each individual person becomes a remote-controllable bio-object, for all practical purposes a robot with a bar code on his body or a microchip implanted under his skin.”

Patriarch Kirill II of the Russian Orthodox Church told a meeting of the Bishop’s Council of the Russian Orthodox in February that “the church understands the position of people who do not wish to be subject to control that makes it possible to gather all-encompassing information about their private life, and could in the long-term be used to discriminate against citizens based on their world view.”

On 27 March, thousands of Greek Orthodox priests, monks, nuns and lay people marched through Athens to the Greek parliament building in protest.

In April, the Synod of Bishops of the Church of Greece expressed its concern about the cards and said it would hold meetings with top government officials. Metropolitan Prokopios of Philippi, Neapolis and Thasos, who chairs the synod’s committee on dogmatic and canonical questions, reported that as a result of preliminary talks with the Greek government, the church had received assurances that, among other things, the numerals 666 would not appear in the cards in any form.

Archimandrite Iannuarii Ivliev, a professor of biblical studies at the St. Petersburg Theological Academy told the May edition of Neskuchny Sad, a Russian Orthodox magazine, that the obsession with symbols such as 666 are the result of a primitive interpretation of the Book of Revelation.

“Many years of atheism and the ban on all Christian education has had a poisonous effect,” he said. “Several generations of people have grown up whose religious consciousness, through no fault of their own, is on the most primitive level. They are baptized, but unfortunately not enlightened by the light of Christ’s Gospel … They think that they are under siege from all sides by ‘demonic forces.'”

He said the Bishop’s Council of the Russian Orthodox Church asked the government to make electronic forms of identification optional.

Letter from William Souvall, OCL President, to the Assembly of Canonical Orthodox Christian Bishops

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A letter from Orthodox Christian Laity president William Souvall. Highlights:

…The need for thorough committee work is understood, but it should not delay palpable unity-related activities which can be undertaken immediately: such as increased and highly visible Pan-Orthodox worship services throughout America.

With few exceptions, the Orthodox presently worship together only on the Sunday of Orthodoxy when attendance is often disappointingly low. In some regions, even this minimal activity has either been neglected or discouraged. Is it not fair to ask why Pan-Orthodox activities and initiatives at almost every level rank so low in priority? This example is cited to demonstrate that such activities need not wait for the formal committee work which the Assembly is laboring to commence.

[…]

…Unless the Church’s leadership vocally, visibly, and urgently insists that unity matters, this present woeful situation will persist. We suggest that the Assembly address this matter by creating a permanent office and staff, not only to coordinate the committee work but also to energize and sensitize diocesan and local communities to undertake unity-related activities. The more we live unity, the sooner it will be realized.

Source: Orthodox Christian Laity | HT: Byzantine, TX

April 25, 2011
Bright Week
Feast day Great Martyr George

His Grace Rt. Rev. Bishop Basil
Bishop of the Diocese of Wichita and Mid-America
Secretary of the Assembly of Canonical Orthodox Christian Bishops

Christ Is Risen!

The officers and members of Orthodox Christian Laity hope this letter finds you, your family and the faithful of your Diocese in good stead and spirit. We also pray that the Holy Spirit inspires you and your brother Bishops with wisdom and courage as you prepare for the next meeting of the Assembly of Canonical Orthodox Bishops. It is because of your direct responsibility in coordinating the Assembly’s activities that we are writing to you at this time.

We write, not as critics or monitors of your work and the work of the Assembly, but rather as supporters and advocates, for nearly twenty-five years, of Orthodox Unity in America. In this vein, OCL has sponsored many public meetings and forums attended by thousands throughout our country. OCL has also developed and distributed books and other written materials devoted to the cause of unity. It has collaborated with hierarchs, clergy and the laity from every Orthodox jurisdiction who have expressed a commitment to a truly united church. In this effort OCL has been in both spirit and action unequivocally inclusive and Pan-Orthodox.

We are encouraged that under your leadership, the Assembly has established its own website and committees with Episcopal chairs and members. We applaud these tangible actions which give form to the Assembly. Unfortunately, these steps are not yet fully reflected throughout our churches, neither at the highest ecclesiastical levels nor at the parish level. It is good to establish websites and committees, but unless their reality is projected by hierarchs and by clergy from the pulpit, ignorance of, and indifference to the unity effort will prevail. This lack of a growing unity consciousness is disappointing. It is a responsibility which rests not just with the hierarchy but with all of us, clergy and laity alike.

We are told that the unity effort is in its early stages and that the Assembly must proceed carefully in an organized manner to deal with a variety of complex ecclesiastical issues. The need for thorough committee work is understood, but it should not delay palpable unity-related activities which can be undertaken immediately: such as increased and highly visible Pan-Orthodox worship services throughout America.

With few exceptions, the Orthodox presently worship together only on the Sunday of Orthodoxy when attendance is often disappointingly low. In some regions, even this minimal activity has either been neglected or discouraged. Is it not fair to ask why Pan-Orthodox activities and initiatives at almost every level rank so low in priority? This example is cited to demonstrate that such activities need not wait for the formal committee work which the Assembly is laboring to commence.

In this respect, we offer an observation and suggestion. We know that pastoral and administrative duties of the hierarchy, their staffs and parish clergy are more pressing on their time and resources. Unless the Church’s leadership vocally, visibly, and urgently insists that unity matters, this present woeful situation will persist. We suggest that the Assembly address this matter by creating a permanent office and staff, not only to coordinate the committee work but also to energize and sensitize diocesan and local communities to undertake unity-related activities. The more we live unity, the sooner it will be realized.

If the Assembly seeks substantive and substantial participation of the laity in its committees and other work, it will be all the more likely that its mission will be achieved, particularly in light of the possibility that a Great and Holy Council could convene as early as 2013. With only fifty eight bishops and an estimated 1,000 priests in the various jurisdictions and active faithful of perhaps 1,000,000, it is clear that substantial involvement of the laity must be enlisted. We have every confidence that hundreds of devout men and women of diverse talents—many in retirement—would respond positively to calls for participation in the mission of Orthodox unity.

We also appreciate your efforts and that of others to discuss the Assembly’s work and more broadly the question of unity. Interviews on OCN’s Come Receive the Light and Ancient Faith Radio have been most helpful, but these efforts must again be reflected at the parish level. It is essential that unity initiatives and discussions at regional, metropolitan and local areas be sanctioned and promoted by the Assembly. We believe one way to encourage such activity is for the various jurisdictions to designate unity liaisons of both clergy and laity at diocesan and local levels.

We urge the Assembly to widely disseminate information about developments here and abroad that might affect the pace and nature of Church unity in America. Frequent updates on the deliberations of the Assembly or the Chambesy meetings, even if contentious, will help the faithful understand the complexity of the issues and how much time it may take to for them to be resolved.

Your Grace, OCL’s commitment to a united and canonical Orthodox Church in America is based on our Lord’s command that we “be one”. We take that to mean in spirit, body and worship. Following the historic and inspiring decisions taken concerning unity by the Synaxis at the Ecumenical Patriarchate in 2008, OCL promptly endorsed and engaged in activities supporting the actions taken by the leaders of World Orthodoxy. When OCL learned that an Assembly of Bishops was to be formed and convened, our members, on short notice, happily expressed their support in tangible ways, including significant financial assistance. OCL genuinely anticipated that a path toward Orthodox unity in America had finally arrived. OCL seeks no special status, but only to energize and expand the involvement of the People of God in the work of the Assembly.

We realize, Your Grace, that you and your fellow bishops carry a great and historic responsibility for ending the division of our Church in America. It is for this reason that we hope our observations and suggestions may prove helpful to the Assembly as it moves forward. In the end, the divine mandate for one united Church is a command to all the faithful. It is in response to this imperative that Orthodox Christian Laity has and will continue to pursue the unity of our faithful in America in all appropriate ways. We look forward to your response.

We pray that our Risen Lord may guide you and your brother bishops wisely and prudently in this most holy task.

Most Respectfully,

William Souvall, President
Orthodox Christian Laity

cc:

His Eminence Most Rev. Archbishop Demetrios of America, Chairman
His Eminence Most Rev. Archbishop Antony Ukrainian Orthodox Church of the USA, Treasurer
His Grace Rt. Rev. Bishop Maxim, Coordinator for Committees
His Grace Rt. Rev. Bishop Andonios, Coordinator for Agencies and Endorsed Organizations

Charting the Course to $7 Gas

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I’m not an economist but the the essay below makes a lot of sense. The author, J. Kevin Meaders, says this is the cycle we are in:

The Fed has tripled the money supply and reduced interest rates to zero.
A stronger economy is trying to get off the ground but can’t because all the newly created money is being retained by the banks in reserve.
Eventually the banks will start lending again, and the velocity of money will increase.
When that occurs, inflation will begin to show signs that even Bernanke can’t ignore, and he will respond by raising rates.
Eventually, increased velocity, inflation, high oil prices, and interest rates will conspire to crash the market again. And we start the whole thing over again — if we can.

Source: Ludwig von Mises Institute | J. Kevin Meaders

Let’s go back to the beginning of the current economic crisis — yes, it is still a crisis for many millions of Americans who lost their jobs, ruined their credit, filed for bankruptcy, lost their homes, and lost their lifestyle. Shanty towns have popped up all over America, though rarely gaining media exposure.

Tens of millions have been ripped from the middle class back down into the poverty from whence their parents or grandparents had climbed.

Make no mistake: it is not capitalism that got us here; it is government interventionism and central banking — the Federal Reserve.

The first two charts we’re looking at are the S&P 500 Index (top) and the Effective Federal Funds Rate (bottom). Our current economic state of affairs began with the Internet bubble (the red arrow on the first chart), which itself was exasperated by an earlier easing of the federal-funds rate (the green arrow on the second chart).

After the bubble burst in 2000, Alan Greenspan sought to prop up the “irrational exuberance” against which he himself had cautioned, by dropping interest rates — artificially, of course — from 6.5 percent down to barely 1 percent in 2002 (the orange arrow on the second chart).

The whole idea here was to encourage corporate (and private) spending by lowering the cost of borrowing money. This “cost” was thus much lower than it otherwise would have been in a truly free market, where interest rates are set by the supply and demand of money. Today, a free-market interest-rate environment is simply a dream — it’s illusory; it doesn’t exist. The Fed, rather, simply creates as much supply as it wants, and then hopes foolish risk takers will take the bait. Indeed, millions did.

Enter the housing boom. Maybe you remember the 1 percent LIBOR interest-only adjustable loans? How completely, unrealistically optimistic (or gullible) did you have to be in order to buy into an adjustable-rate mortgage (ARM) when interest rates were at an all-time low?

In any event, the loose-money policy and low interest rates drove the real-estate market to new, all-time highs, with record low unemployment and a false feeling of risk-free risk taking.

Sure enough, inflation hit, the Fed raised rates, those ARMs adjusted upward, people couldn’t sell their house for what they owed, and then record foreclosures ensued. All the while, the banks responsible for the bad loans got bailed out by the taxpayer, and the bank executives got to keep their multimillion-dollar bonuses. Hooray.

But that’s not the end of it. Once the housing bubble burst, our masters at the Fed (primarily Comrade Bernanke) decided to drop rates to zero and to inflate the money supply beyond all recognition.

The next chart is the Fed’s monetary base. Note the vertical movement during and after the Depression of 2008: an increase from around $800 billion to just over $2.4 trillion.

This is the most worrisome chart I have ever seen. By comparison to what Bernanke has done, take a look at the blip (circled in red) that Greenspan caused just after the dot-com bust in early 2000. This is not the kind of comparison that makes it to CNBC or the front page of the Wall Street Journal.

If 1 percent interest rates and that small Greenspan monetary increase back in 2000 caused the boom and ultimate crash of 2008, then what will be the ultimate result of our current extended course of 0 percent interest rates and a 300 percent increase in the monetary base?

There is an answer, but it’s not good. To quote Human Action, by Professor Mises, the economist who actually predicted our current plight over 60 years ago,

There is no means of avoiding the final collapse of a boom brought about by credit [or monetary] expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of the further credit expansion, or later as a final and total catastrophe of the currency system involved.

The end result seems fixed; the only question that remains is what happens between now and then.

Even though the federal-funds rate has been at zero, and even though the Fed has created enormous amounts of fiat money, most of that money remains at the banks. Take a look at the chart below.

This chart represents the amount of money our nation’s banks keep on deposit with the Federal Reserve. So you see, the newly created money is being held by the banks, who instead of loaning it out to folks who would like to refinance their houses and businesses that might expand and hire (which is what the Fed intended), they (the banks) just redeposit the free money back with the Fed and earn massive amounts of interest.

What? Are you kidding me? The banks got bailed out from billions of dollars in bad loans that they issued, then they got literally $1.2 trillion (as you can see from the chart above) of free money that they then turned around and invested in Treasuries, the interest on which is one of Obama’s biggest line-item budget expenses. Are we living in an Ayn Rand novel? How would you like to get free money to invest, the interest on which is guaranteed by the government’s taxation authority (and guns)?

And speaking of the budget, the next chart is the second scariest I’ve ever seen. It shows the federal deficit, which now surpasses $1.4 trillion annually! Note that the chart is denominated in millions.

Unless Congress cuts spending dramatically (which I doubt will happen), the Fed will continue to buy Treasuries to fund our deficit with money that is created out of nothing, just like the Weimar Republic did after World War I. The end result must be a collapse.

Not to throw more fear on the fire, but recently the “Godfather of Bonds,” Bill Gross, who manages over $1 trillion, sold every single Treasury his firm owned because, according to a shareholder letter he recently published,

Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies — inflation, currency devaluation and low to negative real interest rates.

I would venture to say it has already begun.

“So what can we do about it? And how does this affect me and my money?” Did I just hear you ask that? Well, good question. Because I don’t have the space or the time to go into detail here, suffice it to say that booms and busts are easy to understand and predict if you reject the currently prevalent Keynesian School of economics and look to the Austrian School.

Most people have heard of the “wheelbarrow inflation” of the Weimar Republic in Germany. History has been down this very same road many, many times, and the result is always the same.

Thus, we can learn from the Austrian economists’ reasoning — which reflects realism and historical facts, and not flights of academic fancy. Though I run the risk of dramatically oversimplifying the investment method, essentially you want to be more aggressive in a monetary expansion phase and more conservative in a monetary contraction phase. It sounds easy, huh? In reality, it is impossible to time the market to the day or even the month, but our experience in 2000 and 2008 has shown that it is possible to be correct to within a 12- to 18-month period. The key is knowing what signs inevitably show themselves — and taking heed.

As a prime example, one of the chief indicators we monitor in addition to those above is the velocity of money. This can vaguely be analogized to how quickly a dollar moves from one hand to another, but it is much more than that.

Every time you deposit a dollar into your checking or savings account, your bank can then lend that dollar out to ten other people, essentially creating ten more dollars out of your one dollar deposit. This is called the Mandrake mechanism, and it is part of the problem of expanding credit, because your dollar is leveraged ten to one. This exponential expansion of money in the banking system creates vast profits for the banks, but also vast losses when a run ensues. (The true reason the Federal Reserve System was created was to bail out the banks.)

So here’s a recap:

The Fed has tripled the money supply and reduced interest rates to zero.
A stronger economy is trying to get off the ground but can’t because all the newly created money is being retained by the banks in reserve.
Eventually the banks will start lending again, and the velocity of money will increase.
When that occurs, inflation will begin to show signs that even Bernanke can’t ignore, and he will respond by raising rates.
Eventually, increased velocity, inflation, high oil prices, and interest rates will conspire to crash the market again. And we start the whole thing over again — if we can.

With the tripling of the money supply, cold mathematics would imply that eventually prices will likewise triple — once the new money has made it out into the economy. Thus, $3.50 gas becomes $10.50 gas. Clearly the math is not as easy as that, because really no one (especially Bernanke) can predict what will happen; but if history is any guide, then all of a sudden, $7 gas seems like a deal.

J. Kevin Meaders, J.D., CFP®, ChFC, CLU, CEO, is a founder and managing partner of Magellan Planning Group and a Registered Principal with ING Financial Partners. Send him mail.
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The views and opinions are those of J. Kevin Meaders, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Additional risks are associated with international investing such as, currency fluctuation, political and economic stability, and differences in accounting standards. Investors cannot directly invest in indices. Past performance does not guarantee future results.

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