'I describe the present economic crisis in terms of economic resonance. The economy experiences oscillating money-flows between the commodity market and the bond market. When money flows from the bond market to the commodity market we witness the inflationary phase of the cycle. Inevitably, rising interest rates accompany this phase. At the top of the cycle the money-flow will reverse itself and will go from the commodity market to the bond market. This is the deflationary phase of the long-wave cycle that, no less inevitably, is accompanied by falling interest rates. These huge money-flows are driven by speculation. When the central bank intervenes in the market to control the rise of interest rates, it inadvertently makes prices fall; and when it intervenes to stop prices from falling, it inadvertently makes interest rates rise. The upshot is that the central bank intervention, rather than tempering movements, aggravates them. This is the fundamental flaw of Keynesian economics. At the present junction the Fed is buying bonds to combat deflation. Bond speculators know this and will buy the bonds first, driving down interest rates in the process. The result is more deflation, not less. The Keynes-inspired central bank action is counter-productive. Policymakers are blind and don't see this. They stick to their self-defeating monetary policy. They actually become the quartermaster general of the depression they are trying to avoid. As if cursed by a particular kind of madness, policymakers saddle society with the vampire of risk-free speculation. They turn the constructive energy of stabilizing speculation into a most destructive kind of energy: destabilizing speculation. The problem cannot be cured because bond speculation cannot be eliminated.'

'The immediate cause of the depression is the destruction of capital. The ultimate cause is the monetary policy of open market operations. -- Another way of describing this scenario (assuming it is correct) is that in 1981 the Fed, unknown to the public, decided to recruit a corps of shills to prop up a moribund bond market. The shills hired by the casinos of Las Vegas bet big and win big at the gaming tables in full view of the gamblers who are unaware that they are being treated to a show. The sight of these big payoffs will then perk up the gambling spirit of a lethargic clientele. The shills recruited by the Fed are the bond speculators, and their remuneration is in the form of risk-free profits they are allowed to make (and keep). The scheme was a roaring success. Not only did it save the bond market from extinction; it also saved the dollar from ignominy, and was instrumental in making possible a whole string of bubbles, each bigger than the previous one.'

'The belief that pumping up the money supply through unlimited bond purchases by the central bank will bring about rising prices is a tragic mistake. A higher price level will never be achieved in this way. Bond speculators will have a field day. They would just buy the bonds in any amount. A vicious spiral of falling interest rates is engaged that, like the black hole of zero gravitation, will suck in and gobble up the world economy. -- ...the line between success and failure is hopelessly blurred. If the rate of interest goes down in consequence of Fed action, then: "hooray, we're dead on with targeting inflation. And that's good news". If, on the other hand, the rate of interest goes up, then: "hooray, the economy is turning around. Rates have risen for the very reason we were hoping for: investors are more optimistic about the recovery. It is a good sign." The fact that in the meantime the economy is wiped out, gets lost in the noise of loud self-congratulation.'

'...the gold standard is a necessary but not a sufficient condition for achieving lower unemployment. A necessary and sufficient condition would assume that ... Real Bills doctrine is also rehabilitated along with the gold... The bill market is the clearing house, without which the gold standard cannot survive. The explanation why it collapsed in the years 1931-35 is that, when the victorious Entente powers decided to restore the gold standard after World War I, they also decided not to restore real bill financing of world trade or world-wide real bill circulation. Thus the gold standard which Britain reestablished in 1925 lacked a vital organ: a clearing house. The Entente wanted bilateral (to the exclusion of multilateral) trade for fear of German supremacy in exports. This decision was a great setback for world trade. In effect, it meant a return to barter. The consequence was: beggaring-thy-neighbor, trade war, the destruction of the wage fund, and massive unemployment world-wide.'

'...the gold standard is a necessary but not a sufficient condition for achieving lower unemployment. A necessary and sufficient condition would assume that ... Real Bills doctrine is also rehabilitated along with the gold... The bill market is the clearing house, without which the gold standard cannot survive. The explanation why it collapsed in the years 1931-35 is that, when the victorious Entente powers decided to restore the gold standard after World War I, they also decided not to restore real bill financing of world trade or world-wide real bill circulation. Thus the gold standard which Britain reestablished in 1925 lacked a vital organ: a clearing house. The Entente wanted bilateral (to the exclusion of multilateral) trade for fear of German supremacy in exports. This decision was a great setback for world trade. In effect, it meant a return to barter. The consequence was: beggaring-thy-neighbor, trade war, the destruction of the wage fund, and massive unemployment world-wide.'

Audio interview with Professor Antal Fekete

'...inevitably, there were bad banks as well that did not bother withdrawing their bank notes from circulation when the underlying bills expired but made fresh loans with them on which they collected interest. This was very profitable business for them. Nevertheless, their profits were illegitimate and their loans were fraudulent. In effect, the bad banks were borrowing short in order to lend long. I call such a transaction illegitimate arbitrage between the bill market and the loan market, to take advantage of the spread between the higher interest rate and the lower discount rate. The market for real bills must be recognized as a social institution that has evolved spontaneously for the benefit of everybody, to facilitate the most expeditious movement of consumer goods in the greatest demand. Sabotaging the bill market, whether by speculators, or the banks, or by the government itself, is a crime against society. by virtue of its openness, the bill market exposes such conspiracies.'

'A note is evidence of debt. A bill is evidence of value to be added. There is no loan, no lending and no borrowing involved in Joe's purchase and Bob's sale of the flour. None whatever. The transaction cannot be understood except in the context of merchandise maturing into the gold coin that only the ultimate consumer can release—a process that makes the relationship between Joe and Bob one of coordination rather than one of subordination. -- A higher propensity to consume means that Joe the Baker experiences increased cash-flow (really, an increased flow of gold coins). It prompts him to get rid of the gold coins by prepaying his bill outstanding. Rather than buying his own bill back, which may have been endorsed and passed on a dozen times and would hardly be possible to track down, he simply goes into the bill market and buys any bill with three good signatures with his gold coins. The demand for bills has thus increased, making the bill price rise.'

'Real bill circulation will start spontaneously after the total prostration of the world's banking system. Yes, there is life after the sudden death of the banking system. People are not going to commit collective suicide at the altar of fiat currencies. People want to live. They will use whatever little gold is available to them to trade by drawing real bills against the production and distribution of goods they want to consume. It will be a repetition of the miracle at the end of the Middle Ages, when the bill of exchange was invented in Italian city-states such as Florence, Venice and Genoa. It will happen again. The world will do very well with real bills and without banks... When contract law will once again reach the level of highest respect, and promises to pay gold can once again be believed, banks may once again be in vogue. When that day dawns, the best earning assets of the new banks will be real bills drawn on consumer goods in most urgent demand maturing into gold coins.'