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--- Begin Message ----Caveat Lector- Gary North's REALITY CHECKIssue 316 February 6, 2004 LITTLE GREEN LIES The best characteristics of any society can be discovered through a careful study of what parents tell children who are under seven years old. You can trace what is worst in a society by a study of what parents tell their children from about eight years old. They modify what they told them under age seven. "Don't lie," we tell our small children. Then, around age eight, mothers tell sons, "Don't forget to send Aunt Harriet a thank you note for those bunny slippers she sent you for your birthday." Sons old enough to write thank-you notes hate bunny slippers. "But I hate them," they say. Answer: "Don't make Aunt Harriet feel bad." So, the son learns, "Lies are OK after all." Also, next year, Aunt Harriet will send bunny mittens to match. After age seven, we are taught how to break all of the rules that we were taught before age seven. We are rarely taught any rules governing the breaking of once unbreakable rules. We are supposed to intuit the exceptions from the circumstances. Being able to intuit the rules of rule- breaking is widely regarded as a mark of maturity. Maturity is for adults. So is adultery, which is justified in the name of maturity. "You'll understand when you're older," fathers tell their teenage sons. And the sons often do understand when they are older. Like father, like son. And, if necessary, they go on national television and announce, "I did not have sex with that woman." And their wives, having been betrayed this way repeatedly, then tell the press that they believe their husbands. They even tell this to their daughters. Like mother, like daughter. Wives are not stupid, but they are trusting. We can say the same thing about voters. WE TEND TO BELIEVE THE EXPERTS We want to believe those on whom we are dependent. If we are being betrayed, then we are at risk. If we are being betrayed on life-and-death matters, then we are at extreme risk. So, in life-and-death matters, we dearly want to believe. We become soft touches, marks, and suckers for those who prey on trusting souls. The voters know that politicians in general are liars who will say anything to get elected. But they except their Congressman, who shook hands with them once at a fund-raiser. Parents know that the American public schools are disintegrating. But they except the local public school to which they send their children, which somehow has avoided the decay. And so it goes, liar by liar, fraud by fraud. People want to believe. The more dependent they are, the more they want to believe. We are all dependent. The division of labor makes us rich by offering so many alternatives. So, we transfer to others the decision to produce a good product. But we learn, as President Reagan said of the Soviets, to trust, but verify. When a company keeps selling us substandard products, we buy from a rival. We retain our right to say "no." We reserve our right to ask: "What have you done for me lately?" This is why liars seek monopolies. They don't like competition. Competition makes it profitable for buyers to scrutinize sellers. When there are no legal alternatives, the buyer learns that it isn't worth the time to monitor the exclusive seller. THE ULTIMATE MONOPOLY Take a dollar bill out of your wallet. Look for these words: This note is legal tender for all debts, public and private. Now, that's a monopoly! It's a legal monopoly of debt repayment. The creditor must accept it. You hold a monopoly in your wallet. But if you have lent money, the debtor holds a similar monopoly in his wallet. And the United States Treasury holds a monopoly on us all. That dollar bill, like all American currency, is printed on special paper. The company that produces this paper has had a legal monopoly for over a century. No competing bids are ever accepted by the U.S. Treasury. Yet not one voter in 10,000 knows about this arrangement, and not one in 100,000 knows the name of the privately held company that holds this incredibly valuable monopoly. Its shares are never listed on any exchange. It is not quite true that this outfit has a license to print money, but you get the general idea. "Nice work if you can get it, and if you get it, tell me how." Governments resent competition, which is why it is not easy to trade in foreign currencies. Thirty years ago, it was almost impossible. Even today, I know of only one bank that lets you buy short-term debt certificates in the Chinese yuan: Everbank. There is not much demand in America for yuan accounts. The American public still trusts the United States government to see to it that the dollar is as good as . . . what? And the answer is -- "May I have the envelope, please?" -- the dollar! American voters trust the U.S. government. The government has licensed the Federal Reserve System, a quasi-public bank, to determine monetary policy. This was done, officially, to keep monetary policy independent of the government. No other industry has this protection. No other industry has the guts to come before the general public and say, "We deserve a government-granted monopoly because you can't trust the politicians." Any other industry that attempted this would be hooted off the stage. Special interests are special, but not that special. But central bankers tell this to voters in every nation, and the voters buy it. "Nice work if you can get it, and if you get it, tell me how." My favorite example is a student essay contest held by the Minneapolis Federal Reserve Bank, which does not have the legal authority to use the government's free postage "frank" because it isn't an agency of the U.S. government. (The Board of Governors of the FED is.) You'll love this! Students Answer the Question: Is the Federal Reserve Too Independent? "One matures over time." That was Paul Volcker's response when he was reminded that he once suggested the Federal Reserve System should be placed under the direction of the Treasury Department. The former Federal Reserve Board chairman made the suggestion about 40 years ago in an undergraduate thesis. That public reminder of Volcker's college thesis was all in good fun, but the issue of external control is no laughing matter for the Fed. It's been a matter of contention since passage of the Federal Reserve Act in 1913 and strikes at the heart of 76 years of debate. In that spirit of debate, and to commemorate the Fed's 75th anniversary, the Minneapolis Fed sponsored an essay contest for Ninth District high school students last fall. The 90 participants, whose entries were reviewed by a panel of district educators and economists, addressed this question: Should the current structure and independent status of the Federal Reserve be maintained, or should it be modified to give Congress more control? While the majority of students said the Fed should remain independent, some echoed Volcker's earlier sentiments and suggested that the Fed has too much unsupervised power. Indeed, one of the winners, Julian Dolby of Ham Lake, Minn., who supports the idea of Fed independence, posed this question: "Does this mean I think this is the best Federal Reserve possible? Not at all." Dolby went on to explain that he supports change in the way monetary policy is formed, and he encouraged greater cooperation among the Fed and other branches of government. But, he added, "Keep the Federal Reserve independent of all branches of government, particularly the U.S. Congress." Dolby shared second-place honors with Erin Magnus of Bovey, Minn., and her conclusion reflects the majority opinion: "The loss of independence to the Fed would deal a serious blow to the American economy. Monetary policies would be subject to political browbeating and games-playing. The notorious red-tape delays of Congress would seriously hamper the effectiveness of the Federal Reserve that had lost its autonomy." The first-place essay, submitted by Pam Bernicke of Eau Claire, Wis., and reprinted below, argues that the Fed's independence is essential for establishing long-range economic policies. Bernicke, Bond, Magnus and each of the 31 finalists received US savings bonds as prizes, along with an invitation to spend a day at the Minneapolis Fed for an educational workshop. The students' teachers and parents were also invited to the program. http://minneapolisfed.org/pubs/region/89-05/REG895C.cfm This attitude extends into every economics department in every state-accredited college in America. The most free-market of all first-year economic textbooks is the one written by Gwartney and Stroup. This is the only one written by members of the "public choice" school of economics, which is famous for arguing that every government employee is governed by the same self-interest as anyone else, including capitalists. In the 4th edition (1987), we read: Central banks are charged with the responsibility of carrying out monetary policy. The major purpose of the Federal Reserve System (and other central banks) is to regulate the money supply and provide a monetary climate that is in the interest of the entire economy (p. 281). The authors then devote ten pages of text to a description of the operations of the FED, without one word of criticism, and openly denying the private legal status of the system: "In reality, it would be more accurate to think of the Fed and the executive branch as equal partners in the determination of policies designed to promote full employment and stable prices" (p. 283). Question: What happened to Congress, which the Constitution assigns exclusive power over the purse? What happened to the frank? What happened to the laws of economics? What happened to self-interest? What happened to the economic analysis of monopoly that the authors apply to every other area of the economy? Public enterprises can thus be expected to use at least some of their monopoly power, not to benefit the wide cross-section of disorganized taxpayers and consumers, but as a cloak for inefficient operation and actions to advance the personal and political objectives of those who exercise control over the firm. Government ownership, like unregulated monopoly and government regulation, is a less ideal solution. It is not especially surprising that those who denounce monopoly in, for instance, the telephone industry seldom point to a government-operated monopoly -- such as the Post Office -- as an example of how an industry should be run (pp. 466-67). The authors by this stage in their textbook had already pointed to just such a government monopoly (as they incorrectly and misleadingly defined it), the most powerful and profitable monopoly of all, the monopoly over money creation and monetary policy: central banking. They discussed the FED in Chapter 12, "Money and the Banking System" before they presented Chapter 19, "Monopoly and High Barriers to Entry." The authors fully expect the reader to fail to notice this theoretical discontinuity, as if there were some economic justification of the inapplicability of Chapter 19's analysis to Chapter 12. This is a safe assumption. Most students do not notice. Neither does Congress. If you want the best and clearest analysis of the fraudulent and destructive system known as fractional reserve banking, read the book by the Austrian School's free market economist, Murray Rothbard: "The Mystery of Banking." It's posted free on-line. http://www.mises.org/mysteryofbanking/mysteryofbanking.pdf --- Advertisement --- The Secret to Common Sense Profits of $20,302 in 42 Days Safe trading doesn't have to be boring -- and it can lead you to triple-digit profits. Let the best -- and most reluctant -- trader we know show you how to consistently make home-run profits without abandoning common sense. Join today, and you could triple the value of your portfolio in the next 12 weeks. http://www.agora-inc.com/reports/CNS/EagerGainer/ ----------------------- ENDLESS LIES Let's examine this statement: Central banks are charged with the responsibility of carrying out monetary policy. The major purpose of the Federal Reserve System (and other central banks) is to regulate the money supply and provide a monetary climate that is in the interest of the entire economy (p. 281). First, who charges them? The government? Congress? No one charges them. They are legally independent. Second, who says the major purpose of central banks is "to regulate the money supply and provide a monetary climate that is in the interest of the entire economy"? That is indeed the two-fold official justification for the monopoly. But official explanations of special interest groups are always suspect, and especially special interest groups that receive a monopoly. The monopoly over money is the largest economic monopoly of all. Third, how well has the FED carried out its "mandate" since 1913? See for yourself. Go to the Web site of the Bureau of Labor Statistics. http://www.bls.gov Look for "Inflation Calculator." It's the second entry under "Inflation & Consumer Spending." Click the link. Up will pop the inflation calculator. Enter the figure 1000 in the box, and then click the down arrow to enter the date: 1913. Then click "Calculate." You will see how much money, after taxes, you would need today to equal the purchasing power of $1,000 in 1913, the year of creation for the FED. Then assess the success of half of the FED's supposed mandate, i.e., "provide a monetary climate that is in the interest of the entire economy." To compare the success of the FED's monetary policy, recall that gold today is about $400/oz. In 1913, it was $20. That is, gold today is 20 times more valuable, as assessed in dollars, than it was in 1913. Compare this to the resulting figure in the Inflation Calculator. I'm not going to tell you. You should do this exercise for yourself. What we see is an endless supply of lies about economic stability, stable money, and the need for a government monopoly to control monetary policy independent of the government. These lies I call little green lies. (In other countries, these lies have different colors.) These lies are not new. The footnotes get revised, new editions are published, but the lies remain the same. These are not errors. They are lies. Anyone in academia or banking or government who starts telling the truth finds that his income, as denominated in dollars, falls a lot faster than the dollars depreciate. So, the lies are not challenged. They are accepted. THE MONOPOLY IS FADING The monopoly over money is fading. New kinds of money replace M-1 and its components: currency in circulation and checking accounts. We got M-2, then M-3, then MZM. They vary. The experts do not agree on which is "the real money." They are not sure which has the greatest influence. The central banks do not control them directly. Sometimes, as today, central banks do not seem to control them even indirectly. In 1992, America's #2 senior commercial banker emeritus, Walter Wriston of Citibank, wrote a book, "The Twilight of Sovereignty." (The senior commercial banker emeritus, then as now, is David Rockefeller.) He admitted that central bankers had lost control over money and the economy. New information technologies have undermined any centralized control. I think he was correct. As individual entrepreneurs search for profits at the expense of entrenched bureaucrats, including monopolists, they will undermine the dreams and schemes of professional liars. The lies of 1913-2004 will be revealed as lies. A great default is coming. I intend to write about the great default in coming weeks. My goal is to remind myself of the truth I learned from my parents at age five: liars never prosper. They added "in the long run" when I was older. John Maynard Keynes (B.A. mathematics), the apologist and architect of today's system of government lies favoring the productive power of taxation, once said, "in the long run, we are all dead." He was correct; we are. The question is: How should we then live? If you have bet your future on the productivity of government lies, you had better be aware: the economic long run may arrive before you die. The power of free market forces is greater than the power of Mr. Greenspan and his peers in other central banks. When the bough breaks, the cradle will fall. Conclusion: stay out of cradles. ---------------------- Appendix 73 As you know, the deadline to order the Jay Abraham encyclopedia is Feb. 15. After that, it goes to $10,000. For details, send an e-mail to: [EMAIL PROTECTED] This testimony comes from a man I have known for over a decade. He is marketing oriented. In his profession, he is uniquely marketing oriented. He attends marketing conferences, unlike most businessmen. He applies what he learns. I am an attorney with a small law practice emphasizing business and corporate work. With a few exceptions, most of my clients are people just starting a new business or business owners who have reached the stage where they need to incorporate or operate their business in some form or entity other than a sole proprietorship. Over a period of time, I streamlined the incorporation process so I could do it quickly and easily. My service was offered through the yellow pages at a very reasonable fee as compared to most other attorneys. I thought the fee itself would be attractive enough to generate a substantial volume of business. However, after more than a year of this approach, I was still not getting the volume of business I needed or wanted. Lawyers use the Yellow Pages more extensively than most businessmen, chiropractors excepted. Usually, the ads don't stress price. His ads do. This makes him different. He hit a brick wall: low prices did not add to his volume. He listened to Abraham tapes. He bought an Abraham book. Then he restructured his own business. I implemented five of the ideas over a period of several months and have witnessed the number of incorporations (and limited liability companies) almost double from an average of 3 to 5 a month up to an average of 7 to 10 a month. He charges about $1,000. I saw him say this on a videotape at a conference. You can get the same basic service for under $300 from The Company Corporation of Delaware and other services, but most people don't know this. http://www.corporate.com It is possible that his advice is worth the extra money. It probably is for most people. In any case, most people deal with a local attorney to set up a corporation. Implementation of Ideas 1. Make it easy for customers to contact you. Jay discussed in his tapes the need to make it easy for customers (or in my case, clients) to contact you. It is often difficult to contact an attorney. They are either in court, with a client, on the phone, etc. In my yellow page ads I started listing a "free recorded message" with a toll free number. Some people are hesitant to call and get a sales pitch but are anxious to get good information. My recorded message was about 60 seconds long and briefly described my service, the fee, my guarantee of satisfaction and then indicated I could provide additional information by email, fax, phone or regular mail if they would leave the appropriate information. Although I have not done a scientific study, I estimate about 80% of the callers leave a message requesting more information. This is good advice. I used a similar technique to build my newsletter business in 1974-75: a recorded message. Today, I use instant-reply autoresponders. Visit my site: http://www.garynorth.com In fact, download webstripper and make a copy of my site. I will be revamping it soon. The free information will probably be removed. http://www.webstripper.net 2. Follow up with phone calls. Previously, I rarely called people after I sent them information. Jay's tapes indicated that you could increase your sales substantially just by following up with a phone call. I started doing this and usually just asked if the customer or client had received the information and if they had any questions. I found this to be an excellent opportunity to develop a friendly closer connection with the customer and show them that I really knew what I was talking about. Again, I have not done a scientific study but believe that a phone call after sending information about my service has had a significant impact on the volume of sales. If you are selling a high-ticket item, phone calls pay. But I prefer follow-up first class mail. 3. Offer a guarantee. Although my practice is located in [ ], I set up corporations and limited liability companies in many other states. This is often done by telephone, email, fax, etc., without ever meeting the client in person. This type of arrangement requires some element of trust on the part of the customer or client. This is accomplished in several ways. I believe the telephone calls mentioned above help develop an element of trust. Secondly, I offer a guarantee of satisfaction in all of my literature. I promise to refund the entire fee they paid if they are not completely satisfied. The money-back guarantee shifts much of the risk from the buyer to the seller. This is Abraham's recommended practice of risk-reversal. 4. Provide Testimonials. After listening to Jay's tapes, I decided it was important to collect some testimonials from previous clients. There were a lot of clients who told me they really liked my service but I had neglected to write it down. I began asking people if they would provide me with a statement about why they liked the service. Everyone said they would but most got busy and didn't get around to it. I found the most effective way was to ask them what they liked about the service and then write it out and ask their permission to use it. This seemed to be the most productive method. I even obtained some testimonials from professional people such as accountants. I believe this adds to the level of trust and credibility which customers need in order to spend their money with you. The testimonial also reduces risk, or at least the buyer's perception of risk. The more space you have in your ad materials, the more you should consider testimonials. But make sure the benefits are explicit. Vague generalities don't persuade. 5. Ask for Referrals. In the past, I never thought much about referrals. After listening to Jay's tapes, I decided that, at the very least, I needed to let people know that I wanted and accepted referrals. Some of my clients said they didn't know I accepted referrals. I include a sentence at the bottom of the statements (bills) I send out indicating that most of our business comes from referrals and we really appreciate any referrals they care to make. Most of my clients call once or twice after I've set up their corporation or LLC to ask questions. After discussing their questions, I tell them I appreciate their business and would appreciate referrals from any of their friends or business associates. Again, I have not done a scientific study but continue to receive an increased number of phone calls from people who say you set up a corporation for so and so and they said to give you a call. These are the best prospects because I don't need to sell them or create a level of trust. They already have that from talking with their friend or associate. If you don't actively seek referrals in your business, you are throwing away money. You must build in referral generation. It's so easy to do. Finally, he mentions back-end sales, what I call the Jacqueline Susann method: "Once is not enough." I learned from listening to Jay's tapes have substantially increased the volume of business in my legal practice. One additional method that I forgot to mention above, involves the backend sales. I do other legal work such as contracts, agreements, sale of businesses, mediation, etc. I started putting a separate page describing these services in all of the literature I send out. This has helped to generate additional work. ------------- -- Been to the Daily Reckoning Marketplace Yet? -- If not, you ought to see what you've been missing. Want to read more from our regular contributors? This is the place to find it. We've collected some of the best financial advice and commentary available anywhere and presented it to you all in one place. Take a look: http://www.dailyreckoning.com/marketplace.cfm ------------- To subscribe to Reality Check go to: http://www.dailyreckoning.com/sub/GetReality.cfm ------------- If you enjoy Reality Check and would like to read more of Gary's writing please visit his website: http://www.freebooks.com ------------- If you'd like to suggest Reality Check to a friend, please forward this letter to them or point them to: http://www.dailyreckoning.com/sub/GetReality.cfm ------------- E-mail Address Change? 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