Wiser this Time

Monetary inflation is addictive both for governments and those who benefit from it. Once started, it is difficult to stop. Politicians and bankers may think that they are wiser this time not to repeat past mistake. 

In this article, I just want to introduce Andrew D. White's book published in 1896 describing the economic experience of France in the latter part of 18th century. In reading the first 10 pages of the book, you will have an overview of France's situation at that time and how both the leaders and the people thought that they were wiser than John Law's generation. 

Introducing Andrew D. White's ebook

Several days ago, I was thinking how I could use my time meaningfully particularly in my reading of Austrian economics. Among many topics, I selected to study the most researched one, inflation. And so I dug into the available literature provided by mises.org and came up with a list of more than a hundred ebooks in my bibliography. I started with Andrew D. White's Fiat Money Inflation in France: How it Came, What it Brought, and How it Ended. 

White's ebook has only 79 pages, but summarizing the ideas contained in it is still too big to digest for an average reader. So I decided to summarize it in bite-sized portion. The ideas in this article are taken from pages 1 to 10. In reading the first ten pages of the booklet, you will see an overview of economic condition of France in the latter part of 18th century. 

France in 1789

The year was 1789. Both the national leaders and the citizens of France were fully aware of the great dangers of increasing the money supply. The memory of economic ruin during John Law's era was still fresh in their mind. They still remembered the country's suffering about seventy years ago. 

The nation's leaders knew that once the increase of paper money was issued, it is like using an addictive drug that's difficult to stop. They were totally informed about the disastrous consequences of monetary inflation. Nevertheless, they still pursued the easy path to economic recovery despite their knowledge that their action would result to long-term destruction of wealth, reduction of the purchasing power of those who depend on fixed salary, of the emergence of professional "thieves", "a class of debauched speculators" (p.1), of stimulation to overproduce, of industries' depression afterwards, of the breakdown in the habit of saving, and of the appearance of political and social immorality (pp. 5-6). The nation experienced all these bitter consequences of increasing the money supply. However, they thought they were wiser after such experience, and they would never repeat the same mistake. They were deceived.

So in 1790, the government issued the release of "four hundred millions of livres in paper money" (p. 7). Everybody was happy with the immediate results of the injection of new money into the total money supply. ". . . the treasury was at once greatly relieved; a portion of the public debt was paid; creditors were encouraged; credit revived; ordinary expenses were met, . . . trade increased and all difficulties seemed to vanish." (p. 10). 

After five months of short-term celebration, economic uneasiness and distress reappeared. Instead of admitting that the issue of paper money five months earlier was a mistake, the French unanimously cried for another dosage of monetary inflation. The country was trapped, and it appeared that nothing could stop them down to the path of economic calamity. 

Governments Never Learn

The information provided by White in his booklet deserves wider audience so that discerning readers would take necessary action to protect themselves from economic catastrophe that would certainly result from the determined action of governments to inflate their nations' money supply. This concise information teaches that not only France of 18th century failed to learn the painful lesson from John Law's generation; similar scenario is happening in our time.

Politicians and mainstream economists ignore the warning coming from the Austrian school. They think they are wiser this time, and they will never repeat the same mistake committed by the French. 

Source:

White, A. D. (1896). Fiat money inflation in France: How it came, what it brought, and how it ended. New York: The Appleton and Company. 

The Role of Hyperinflation in the Rise of Hitler into Power - Notes from Hazlitt's "Lessons of the German's Inflation"

I started a thread in a theological forum in Facebook about inflation. Initially, I shared two articles from "The Freeman" both written by Henry Hazlitt in 1976. 

One commenter gave his comment and shared the NSO link:

"Inflation in the Philippines goes down to 2.1 percent last August from 2.5 percent in July. The National Statistics Office (NSO) said that this was the lowest level since 2009."

I replied, 

" In the US, Austrian economists think that winning the inflation debate is vital in their fight for economic freedom. Here in the PH, the NSO data is already considered good news compared to other nations' economies. Matagal pa naman daw tayo bago makaranas ng "bagyo". I initiated this thread thinking that as Christian leaders, it is also part of our duty to know both sides of the story. The way mainstream economists use the term "inflation" is different from the way classical liberals use it."

And then I returned to the first article I shared and made some notes. Below are the notes I made:

Note # 1 - Examples of Hyperinflation in History

"When the inflation is sufficiently severe and prolonged, however, when it becomes what is called a hyperinflation, people begin at last to recognize it as the catastrophe it really is. There have been scores of hyperinflations in history—in ancient Rome under Diocletian, in the American colonies under the Continental Congress in 1781, in the French Revolution from 1790 to 1796, and after World War I in Austria, Hungary, Poland, and Russia, not to mention in three or four Latin American countries today."

Note # 2 - German hyperinflation as the most spectacular of all

"But the most spectacular hyperinflation in history, and also the one for which we have the most adequate statistics, occurred in Ger­many in the years from 1919 to the end of 1923."

"By November 15, 1923, the day the inflation was officially ended, it had issued the incredible sum of 92.8 quintillion (92,800,000,000,000,­000,000) paper marks. A few days later (on November 20) a new cur­rency, the rentenmark, was issued. The old marks were made converti­ble into it at a rate of a trillion to one."

Note # 3 - Three Stages of Inflation

Stage 1 - "...prices do not increase nearly as much as the increase in the paper money circulation. This is because the man in the street is hardly aware that the money supply is being increased. He still has confidence in the money and in the pre-existing price level. He may even postpone some intended pur­chases because prices seem to him abnormally high, and he still hopes that they will soon fall back to their old levels."

Stage 2 - "...when people become aware that the money stock has increased, and is still increasing. Prices then go up approximately as much as the quan­tity of money is increased. ...But Stage Two, in fact, may last only for a short time. People begin to assume that the government is going to keep increasing the issuance of paper money indefinite­ly, and even at an accelerating rate. They lose all trust in it."

Stage 3 - "...when prices begin to increase far faster than the govern­ment increases, or even than it can increase, the stock of money."

Note # 4 - Summary of German Hyperinflation

"At first inflation stimulated pro­duction because of the divergence between the internal and external values of the mark, but later it exercised an increasingly disadvan­tageous influence, disorganizing and limiting production. It annihi­lated thrift, it made reform of the national budget impossible for years, ... it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into pover­ty. It was a distressing preoccupa­tion and constant torment of innumerable families, it poisoned the German people by spreading among all classes the spirit of speculation and by diverting them from proper and regular work, and it was the cause of incessant politi­cal and moral disturbance. It is indeed easy enough to understand why the record of the sad years 1919-23 always weighs like a nightmare on the German people? "

"The demoralization that the debase­ment of the currency left in its wake played a major role in bring­ing Adolf Hitler into power in 1933."

Source: 

Lessons of the Geman Inflation by Henry Hazlitt

Monetary Policy and the Philippine Economy - Biblical Critique of Inflation

This is the 4th and last part of my series in "Monetary Policy and the Philippine Economy". The content will be taken from Gary North's "The Biblical Critique of Inflation". I want to present North's material in four parts: 

• Identifying currency debasement as a concrete call to repentance

• The law commands honest measurement and money

• Consequences of inflation, and

• Multiple indebtedness

Concrete Call to Repentance

North started his critique by citing that unlike today's church leaders, Old Testament prophets confronted both the nation as a whole and their civil governments with a concrete call to repentance. Isaiah 1:22 is an example of such call. In this verse, prophet Isaiah declared that Judah was guilty of economic dishonesty. Currency debasement and deceiving the public about the quality of the products in the market were considered normal and ordinary.

Precious metals such as silver and gold were used as money both nationally and internationally during biblical times. North mentioned that you can find "over 350 references" showing various contexts where silver and gold were used. Example passages include 2 Kings 5: 5 and 2 Kings 12:13.

Honest Measurement and Money 

Since gold and money were used as medium of exchange, honesty in economic transaction was vital. North argued that the law's provision concerning honest weights and measurement was also applicable to honest money. He quoted Daniel-Reps' study to show the importance of honesty in economic transaction: 

"Exactness of weight was important not only for dealings in corn and other goods, but also as a guarantee of the soundness of the currency...The practice of weighing money rather than counting it was still general in the Palestine of Jesus' day, as it was all round the Mediterranean. The scales also served to ensure that the coins were of the true metal and that they had neither been filed nor clipped.; indeed, this inspection was one of the banker's and money-changer's chief tasks" (Gary North, Introduction to Christian Economics, 1973, pp.5-6).

During Isaiah's time, silver and gold coins were not yet in existence. They were used as money in the form of "ingots" (p.6). Exactly, the debasement of ingots with cheaper metals was the offence committed by the people of Judah during the prophet's time. 

For North, that was an act of monetary counterfeiting. He considered it fraudulent, an act of theft, and immoral. He then equated it with the use of legal tender laws. And he contends that not even the government is above the law concerning the use of honest money. North explains why this is so:

"...legal tender laws are immoral; currency debasement is immoral; printed unbacked paper money is immoral. To mix cheap metals with silver or gold and call the result pure gold or pure silver is totally fraudulent. Yet this is what was being done in Isaiah's day" (ibid.).

Such act of monetary dishonesty was not new in Isaiah's time. It happened long time before his day. Proverbs 25:4 clearly identifes the command "to take away the dross from the silver".

Consequences of Inflation

"Currency debasement is the oldest form of monetary inflation" (p.7). North warns about the destructive impacts of monetary inflation on the economy. He quoted four paragraphs from Murray Rothbard's "What Has Government Done to Our Money?". I gleaned twelve destructive consequences of monetary inflation from those paragraphs :

• Gain for counterfeiters

• Losses for late receivers

• Redistribution of wealth in favor of first-comers

• Distortion of business calculation (consumers' demands and operation cost)

• Illusory profits

• Suspension of free market's penalty for inefficient firms and rewards for efficient firms

• Business cycle

• Decline in quality of goods, services, and work

• Popularity of get rich quick scheme

• Penalizing thrift, saving, and lending

• Encouraging debt and spending

• Reduction of standard of living in the name of creating "prosperity"

 See how North concluded Rothbard's analysis:

"Rothbard's analysis indicates why God so opposes monetary inflation, whether practiced directly by the State or simply private fraud which is tacitly sanctioned by the State. Currency debasement is theft. It involves the redistribution of wealth. Those on fixed incomes suffer. The quality of production tends to decilne. Monetary inflation (currency debasement) is a fraudulent, invisible tax, and the Bible prohibits it. The nation which permits monetary inflation to persist, as if it were not a terrible moral evil, will suffer the consequences described by Isaiah and Ezekiel (22:18-22)" (p. 8). 

Multiple Indebtedness

Since monetary inflation promotes debt instead of thrift and saving, a corollary economic and monetary phenomenon occurred. North described this as "multiple indebtedness". He got this idea from Exodus 22:25-27.

The passage speaks about the use of interest in lending money and the use of a pledge or collateral. It is this use of collateral where North got this idea of multiple indebtedness. For him, the cloak as pledge serves as a protection for both the creditor and the debtor. The debtor cannot use the same cloak as collateral in multiple loans or transactions. He is confined by his immediate assets. This economic principle prohibits multiple indebtedness. 

1. Fractional Reserve Banking

After laying down the basis for multiple indebtedness, North claimed, "The entire public sphere of civil government rests on the violation of the principle. The whole structure of modern credit is based upon the idea that men should not escape from perpetual debt" (p.11). Particularly, "fractional reserve banking and the limited liability corporation" (ibid.) have violated this economic law. This violation was later organized and designated as "the monetization of debt" (ibid.). Notice how North described this economic phenomenon:

"The central bank of every nation...prints up the money to finance the deficits of the central government, and in return for this fiat currency, the government gives an interest-bearing bond to the bank...From a biblical standpoint, this is utterly corrupt: 'The wicked borroweth and payeth not again' (Psalm 37:21a). The civil authorities do not intend to reduce this debt and repay the principal. They favor perpetual indebtedness. Laws that are transgressed in God's universe will be found to contain their own built-in punishment...Massive national indebtedness is highly dangerous" (ibid.).

Concerning fractional reserve banking, its mechanism is unbelievable. It all starts with a citizen making a deposit either checking or savings account. And from that deposit, fractional reserve can create loans nine times the size of the original deposit. North referenced Wilhelm Roepke saying the same thing about fractional reserve banking as resting "upon the systematic violation of the biblical prohibition on multiple indebtedness" (p. 12). For Roepke, without understanding the mechanism of fractional reserve banking, we cannot understand also "the perils and the problems which currently beset our economic system" (p. 13). 

Fractional reserve banking violates the principle of multiple indebtedness for it indebts itself beyond its immediate assets by loaning money to borrowers. Banks do this for they assume that their creditors will not ask for their money simultaneously. The faulty foundation of this mechanism is exposed when a bank run occurs. 

2. Limited Liability Corporation 

LLC has been in existence for more than a century. North describes this institution as a creature that came out of the economic environment that promotes multiple indebtedness. Or we can also say that with the existence of fractional reserve banking and government intervention, LLC is another form of violation of the principle of multiple indebtedness. North describes three things about this institution. 

First, LLC works as follows: 

"The corporation...is responsible only for the value of its assets. Creditors can collect, in case of coporate bankruptcy, up to the value of the corporation's property, but they cannot gain access to the funds of the legal owners, i.e., the shareholders...Thus, the LLC tends to become a huge, impersonal structure in which effective ownership is separated from management" (p.15).

North's second observation is about the shift in responsibility. Here North relies on Rushdoony's comments:

"...the liability thus shifts responsibility away from the responsible to society at large...with limited liability, a premium is placed on profit irrespective of responsibility. The shareholder is less concerned with buying responsible ownership and more concerned with buying a share in profits. And then, as the state further protects the shareholder against liabilities in his irresponsible pursuit of profits, the shareholder becomes less and less concerned with the responsible and moral management of his company" (pp. 15-16). 

Finally, North identified the influence of government intervention preparing the way for socialism. The limited liability laws are actually one form of government intervention. They destroy personal responsibility before God and before men, they produce subtle people who know how to use bankruptcy laws, and they erode the very foundation of Western civilization. Notice how North explains the connection of limited liability laws to socialism:

"Limited liability laws have produced the era of the huge, impersonal corporations that have produced unquestioned material prosperity, but at the same time these laws are now producing something very foreign to free enterprise...The drift into socialism continues, for it is socialism, above all other systems, which destroys personal responsibility and removes power from ownership..." (pp.17-18). 

Conclusion

At last, after 15 days, I finished my series on "Monetary Policy and the Philippine Economy". So part 1 talks about Dr. Nye's lecture where he identified the economic problems of the country and offered a corresponding solution. Part 2 contains six recent news articles related to monetary inflation written from different perspectives. Part 3 deals with Mises' lecture on inflation. And this last part is about biblical critique of inflation.

In blogging this series, I recognize the existence of gaps. It is just a draft, which needs to be finalized to come up with a lecture format. At its best, this series and other related articles in this blog serve as an introductory overview in the study of monetary inflation.


Part 1 - Dr. Nye's Lecture

Part 2 - Summaries of 6 Related Articles

Part 3- Mises' Lecture

Reference: North, Gary. (1973). An Introduction to Christian Economics. The Craig Press. 

Monetary Policy and Philippine Economy Part 3 - Mises' Lecture

This is my summary of Mises' lecture on inflation with some insertion of content from articles in this blog. I am using the word "inflation" here in its primary sense. You will recall that I already made a distinction in the early part of this series. This distinction is taken from Mises' lecture.

In this summary, I want to share 5 subsidiary topics under inflation: 

1. Two Ways to Solve the Financial Problems of the Government

After Mises clarified the distinction, he shared about two ways the government solves its financial problems. The legitimate way to do it is by taxing the citizens. But since taxing the people is considered not good for political career, another way of addressing the government's financial difficulties was made. This time it is by simply printing paper money.

In directly taxing the people, at least the people are aware about the deduction in their salary and they can adjust their expenses to a new financial situation brought about by new taxes. And another advantage of direct tax compared to simply printing paper money is that the price of goods and services is not affected. The only negative repercussion of such an act is the increase in buying power for the government and less on the part of private citizens. 

But this is not the case when government decides to print paper money to solve its financial trouble. It is also a tax, but people do not see it for it is done indirectly. And it also does not affect anyone's political career. 

What's detrimental in this form of indirect tax is that since people do not see any reduction in their income, they think that they can still buy the same amount of goods that they previously buy when the quantity of money is not yed increased. They do not realize that the purchasing power of their money has been reduced since the certain consequence of printing more money is price increase. And since prices of goods and services have already increased as a result of additional money, those who receive the same amount of salary when the new money was not yet introduced will suffer. And since most people do not know how their money lost its value, they simply consider it as something natural.

2. The Most Affected Sector in Inflation

The fact is, price increase and the lost of purchasing power are not natural. It is an inescapable outcome of government's act of printing money to address its financial problems. So the financial burden is transferred from the government to the citizens without them knowing it. 

Mises was questioning not how the money is spent but how the money is obtained by the government. Due to the preference of the government to use printed money rather than direct tax, some people will have greater advantage than others. Those who receive the new money earlier are in a better position than those who receive it late. Ron Paul identified the early beneficiaries as the “speculators, bureaucrats, and the special interests favored by the government” (Pillars of Prosperity, 2008, p.110). The sufferers are the laborers and savers. Among them are the teachers and ministers. Mises clearly identified teachers and ministers as the people who would suffer the greatest disadvantages from the increase in money supply. He explained why this is so: 

"As you know, a minister is a very modest person who serves God and must not talk too much about money. Teachers, likewise, are dedicated persons who are supposed to think more about educating the young than about their salaries. Consequently, the teachers and ministers were among those who were most penalized by inflation, for the various schools and churches were the last to realize that they must raise salaries. When the church elders and the school corporations finally discovered that, after all, one should also raise the salaries of those dedicated people, the earlier losses they had suffered still remained" (Economic Policy, 1979, p.61).

Since there are groups who benefit from new printed money, for them, this kind of monetary policy is good. I think this explains why there are people who insist that there's nothing harmful about increasing the money supply. On the other hand, those who are harmed by this policy do not know the connection of the government's action to their financial situation. And besides, the technicalities surrounding this matter is so complicated, as if, it was really made intentional in the first place to hide it from average citizens. 

3. How long shall inflation last? 

The basic flaw of this kind of monetary policy is that it cannot last. The Roman Empire, Han Dynasty, and Germany are used as typical examples to demonstrate the catasthropic end of continually increasing the supply of money. Mises described the situation of Germany in 1923. He stated, "On August 1, 1914, the value of the dollar was four marks...Nine years and three months later, in November 1923, the dollar was pegged at 4.2 trillion marks" (ibid., p.63). In short, German currency collapsed. 

The question is, until when will the government continue this monetary policy? Mises answered: "Probably as long as people are convinced that the government, sooner or later,...will stop printing money..." (ibid. pp.63-64). When people do not believe this anymore, then they will realize that prices will continue to increase. As a response, they will start "buying at any price, causing prices to go up to such heights that the monetary system breaks down" (ibid. p. 64). 

Under inflationary monetary system, becoming a debtor is considered wise. Anyone who understands the system could take advantage of it and could utilize it to attain easy wealth. Another feature of inflationary policy is the perception about the government's power. It is looked upon by the people as all-powerful. People ask the government to take care of them for with an unlimited supply of money, the government can do anything. This kind of government perception is a clear break-away from the past for then it was considered the citizens' duty to support the government, not the other way around. US President Grover Cleveland said, "While it is the duty of the citizens to support the government, it is not the duty of the government to support the citizens" (p.66).

In order to correct the wasteful spending of the government, Mises believed that only a return to the gold standard can do it. He argued that the gold standard is a form of protection from extravagant government. One great advantage of it is that "the quantity of money under the gold standard is independent of the policies of governments and political parties" (p.65). 

4. Labor Unions

After explaining the advantage of gold standard, Mises turned to the labor unions. He considered it as the second power next to the government who influence wage rates. The problem with the wage rate demanded by unions is that it is above the level of wage in free market. As a result laborers are only employed by industries prepared to suffer loss. When businesses can no longer afford losses, they shut down resulting to more unemployment.

Currency devaluation has been the usual response of governments to unemployment. But as both workers and unions realized through time that currency devaluation had reduced the purchasing power of their demanded wages, they made additional demand: wages must go up with price increase. This is known as "indexing"(p.69) and so the unions became index conscious that made currency debasement as solution to unemployment inapplicable.

5. Full Employment

John Maynard Keynes was a strong advocate of currency debasement. In his 1936 book, "General Theory of Employment, Interest and Money", he argued that unemployment is bad and that the only way to solve it is by inflating the currency. Mises described Keynes' strategy as "cheating the workers" (p.70) and this is considered necessary in order to attain full employment. 

For Mises, there is no need to resort to inflating the money supply to achieve full employment. The market should be allowed to operate freely without the interference coming from both the governments and the labor unions. This is the only way to achieve full employment. Mises explained this further:

"...wage rates for every type of labor tend to reach a point at which everybody who wants a job can get one and every employer can hire as many workers as he needs. If there is an increase in the demand for labor, the wage rate will tend to be greater, and if fewer workers are needed, the wage rate will tend to fall" (pp.70-71). 

So the choice should not be between inflating the money supply or unemployment. Full employment can be achieved without increasing the money supply. 

Conclusion: 

Mises concluded his lecture by emphasizing that inflation is a monetary policy and it can be changed. And the only way to change it is for the intellectuals to do their role in shaping public opinion. Once the public are informed about the disastrous results of inflation, Mises was confident that politicians will abandon this monetary policy.


Part 1 - Dr. Nye's Lecture

Part 2 - Summaries of 6 Related Articles

Part 4 - Biblical Critique of Inflation


Source: Mises, Ludwig von. (1979). Economic Policy: Thoughts for Today and Tomorrow. Chicago: Regnery/Gateway, Inc.

Monetary Policy and the Philippine Economy Part 2 - Summaries of 6 Related Articles

As a result of my Google search last July 2, I came up with top 10 links, but after visiting them all, I selected seven. The first link directed me to Dr. Nye's lecture. At this point, I want to share my summaries of the content of the remaining 6 articles.

Among six articles, three are safe; two are more realistic, and; the remaining one is in between. That lone article reminds me of Dr. Nye's lecture except that part where he mentioned that Philippine economy was protected from trouble due to non-engagement.

1. Safe Articles

Vulnerable but the economic fundamentals are sound

The recent shift in macroeconomics due to the announcement made by the Chairman of the Federal Reserve exposed the vulnerability of emerging markets. Gerardo P. Sicat claimed that though the Philippines' vulnerability was exposed as result of massive withdrawal of "hot money" from the PSE, our economic fundamentals remain intact. I think he was happy to see peso depreciation for this would benefit the export industry. However, the reduction of stock price index is bad news for domestic investors.

I just wonder why Sicat was calling for reform if the nation's fundamentals are really sound? What did he mean by reform? We read such need of reform from Dr. Nye's lecture. Do they mean the same thing or is Sicat's idea of reform one of protectionism? If he was referring to protectionism, I cannot understand how come he also advocates economic liberalization, which in fact is something commendable.

Time is so fast

Lilian Karunungan's article from Bloomberg reminds me of PSE's jubilant celebration in 2012. The peso appreciated and also there were videos that circulated around that time claiming that the Philippine economy was positioned for growth for decades. But the celebration was short-lived. After nine months, we witnessed that the so-called growth was nothing but an outcome of temporary parking of "hot money" escaping the impact of American QEs.

Bubbles - Fear and Denial

This time, its the impact of Japan's QE on Asia's economy. Policy makers in Asia were afraid, but the Governor of Bank of Japan considered their action as insignificant. The Governor of the Philippine Central Bank confirmed this. And besides, Kuroda promised to monitor the impact of their monetary policy. The writers mentioned also that other central banks have been doing the same thing such as the Federal Reserve, the Bank of England, and the European Central Bank, as if, by mentioning them, the fear of policy makers in emerging countries is baseless after all.

2. More realistic articles

Danger Zone

After defining QE, Cassandra Ty mentioned that US, UK, and Japan have all adopted this monetary policy. The goal of QE is to stimulate the economy. However, since the economy of the world is interconnected, the consequences of this action cannot be confined within the boundary of the initiating nation. Ty clearly identified that it "would have a spillover effect on the rest of the world" and that in fact a huge quantity of this new created money went into the Philippine stock market. Aside from possible currency war in the future, she saw other dangers of QEs include trade imbalance, inflation, and asset bubble.

Till death do us part

I consider this article from Business Mirror most realistic among the six. The writer mentioned about the IMF-WB annual meeting attended by the members of the Philippine Department of Finance. And then he confidently claimed that the Philippine government is "absolutely clueless" about the nature of global crisis and predicted a dark legacy for the existing administration as one of "economic disaster" unless policy makers would start to understand the situation and make necessary changes.

The writer is highly critical of QE. After mentioning the differences in the responses of Thailand, EU, South Korea, and US to a difficult economic situation, he raised the question about the source of $5 trillion, which the US needs to have a good start. He seemed to imply that through QE, the US could get such amount from the emerging countries.

And then the writer quoted history as his basis that monetary systems using fiat currency all collapsed. He cited the experiences of Roman Empire and China's Han dynasty as his examples. In the end, he issued a warning that unless the Philippine peso will be allowed to appreciate, our economy will crash together with the continuous devaluation of the US dollar.

3. In between article - From unreliable PSE into real economy

"The biggest percentage loss since the Great Recession of 2008 and the biggest points dip in the institution's history", that's how Heydarian described the recent drop in PSE prices. He added that emerging markets "have been under siege" as a result of anticipated QE retreat. So the trend is changing in favor of central economies like US and Japan and against emerging economies such as the Philippines. So the call now is for the reform of economic policy and shift the attention from PSE into the real economy. The writer ended his article by giving credit to previous administration.

Part 1 - Dr. Nye's lecture


Part 3 - Mises' lecture


Part 4 - Biblical Critique of Inflation

Monetary Policy and the Philippine Economy - Dr. John V. C. Nye's Lecture

I am done reading Mises' 4th lecture, inflation, from the book "Economic Policy: Thoughts for Today and Tomorrow". Now, I want to write my own piece combining:

• Dr. Nye's lecture on quantitative easing, 
• Summaries of 6 related articles, 
• Mises' lecture, and 
• Biblical critique of inflation

But before I do that, I want to share first my understanding of three important terms.

Three Important Terms

I accept the technical difference between inflation and quantitative easing. However, I see them as basically similar for they are both monetary policies and their essence is the increase of money supply.

Inflation has two meanings, the primary and secondary. Its primary meaning is historical. The secondary meaning is popular. Its historical meaning is either an increase in money supply or it includes the act of creating new money, which results into the reduction of the purchasing power of the monetary unit and price increase. The popular meaning is simply confined in price increase.

Considering the primary meaning of inflation, quantitative easing is basically referring to one and the same monetary policy. Mises Wiki helps me clarify the confusion in my mind when it defines quantitative easing as "a euphemism for an inflationary strategy of monetary policy pursued by central banks." So the term is actually a vague substitution for something that is considered harsh, and in this case, the act that is considered harsh is the increase in money supply.

Concerning monetary policy, I restated the definition given by Mises Wiki as the manipulation of money supply advocated by both monetarists and Keynesians through central banks to maintain economic growth and limit unemployment. Only the Austrian school criticizes monetary policy for its destructive results such as the redistribution of wealth, business cycle, and other disastrous economic distortions.

After providing the definitions of the above terms, allow me to proceed to Dr. John V. C. Nye's lecture.

Dr. Nye's Lecture

Dr. Nye gave this lecture in January 14, 2011 and it was attended by "BSP officials and representatives from both the public and private sector, e.g., the Senate, the Bureau of Treasury, the Presidential Management Staff, Bankers Association of the Philippines, Chamber of Thrift Banks, Philippine Economic Society, Ayala Life, Citigroup, USAID, IMF, and members of the Press." The title of his lecture is "Why Quantitative Easing was good and should be better...and how the Philippines should benefit from it."

The academic credentials of Dr. Nye is very impressive. He earned his Ph. D. in Economics from Northwestern University. At present, he is "a Professor of Economics at George Mason University and holds the Frederic Bastiat Chair in Political Economy at the Mercatus Center." He is also "a specialist in economic history..." Interestingly, the problem of economic development in the Philippines is included among his existing numerous projects. 

In presenting Dr. Nye's lecture, I would like to reverse the order by enumerating first the problems and solution he identified in Philippine economy before presenting his positive assessment of quantitative easing.

1. The Problems in Philippine Economy

At the outset, he described the Philippines as "bystanders in the global drama of economic maneuvers" (p.8) and this explains why we are not much affected by global economic crisis. In short, we are not really in the game; we are just watching as the global players battle on the ground. So it is not really true that the fundamentals of Philippine economy is sound that's why we do not suffer as other countries do. Dr. Nye described further the Philippine situation as "non-engagement" (p.9) and lacking in integration with regional and world trade. So the outcome of such position will be protection from trouble and at the same time, from wealth. 

Dr. Nye painted the ugliness of the nation's economic situation. He described the country as the exact opposite of China, which has become "more economically liberal and more business friendly..." (ibid.). The other way of saying it, is that the country is hostile to business initiatives and you can see it through interventionist policies.

Dr. Nye identified numerous problems in the economy, which are "mostly self-imposed" (p.8). In his view, even though the Philippines share some of these problems with neighboring countries, our situation is far more serious. And that's why he thinks that the country has "one of the most distressing climates for investment in the region" (p.10). 

Though there are other problematic areas in the economy like unprepared infrastructure for regional expansion and excesive concentration of industry in the NCR, most descriptions of the nation's economic problems are related to policies and regulations. Below are the descriptions of economic problems that Dr. Nye identified: 

• "...bad policy and excessive regulation is a breeding ground for corruption and inefficiency that further damages the economy, producing cynicism and complacency" (p.10). 

• "The PH has a fragmented and poorly integrated economy marked by a dysfunctional state institutions coupled with excessive intervention and regulation" (ibid.). 

• "Current rules also slow down the development of more advanced urban regions to accept workers who would like to move out of the countryside" (ibid.). 

• "...while industry is somewhat productive, it is inefficient and hampered in its further development by excessive regulation and high transaction costs" (ibid.). 

• "Nationalistic rules on ownership and investment limit competition and entrench special interests" (ibid.). 

• "...among these are the constitutional restrictions on foreign ownership and investment in the Philippines coupled to the mix of bureaucratic red tape, complicated taxes, and petty corruption..." (p.11). 

• "A crazy patchwork of subsidies, price controls, and regulations give the illusion of helping the poor, while effectively stiffling the economic progress and enriching the corrupt and the politically well connected" (ibid.). 

• "So many policies in the Philippines seem to be motivated by a nationalism that says it is better to be protectionist and nationalistic even if the end result is greater emigration and lower growth" (ibid.). 

• "Various reciprocity and tax rules have had the effect of driving foreign air carriers away from the PH thus weakening competition and taxing PH travelers, PH business, and incoming tourists. Taxing foreign businesses with outside options does not harm the foreigners but ourselves" (ibid.).

Dr. Nye summarized our nation's problems in one sentence: 

"PH major problems have less to do with macroeconomic or fiscal stability but with a badly distorted micro-economic price situation, poor and unreliable property rights and contracting, a stiflingly legalistic bureaucracy, a slew of policies and institutional constraints that are anti-investment and anti-competitive, and a political economy that favors the worst mix of populism, elite rent-seeking, and high-minded but unproductive nationalism" (p.13).

2. Solution to Philippine Situation 

Philippine situation is not at all hopeless. It is not yet too late for the country to benefit from what is happening right now in global economy. After reading the entire lecture, I discern that Dr. Nye's proposal though taking into consideration his idea that the country can take advantage of quantitative easing, he believed that the real issue lies in reforming "micro-economic policies to make investment more competitive." (p.8). In order to maximize the benefit of what's going on, the Philippines must act faster than its neighboring countries in reforming its regulations if it does not want to be ignored by foreign investors due to the existence of better options. Moreover, investors must be given the assurance that the changes in policies will stay and remain consistent in the future. If these conditions are not met, our country will once again "look back in a few decades at another set of missed opportunities as the gap with our Asian cousin further widens" (p.13).

3. Positive Assessment of Quantitative Easing

I observe that even Dr. Nye is against interventionism, his monetary ideas are far from the Austrian school and reflect the perspective of Milton Friedman. We can see this in his assessment of the causes of the 2008 crisis, Quantitative Easing, the Federal Reserve, the Great Depression in the 1930s, US economic recovery, and inflation.

Dr. Nye recognized three separate causes of the 2008 global crisis. He did not see the prior increase in the money supply as the primary cause of the crisis. In fact, for him, the greatest mistake of the chairman of Federal Reserve was the hesitation to provide bigger dosage of quantitative easing. He believed that inadequacy of "monetary expansion can make a bad economy much, much worse" (p.1) and "...real crises can be created or worsened by inadequate monetary policy" (p.2). He was actually proposing "...more easing and something that would surpass what had already been tried" (p.3). He is convinced that "...all the evidence is that QE2 was helpful not harmful but that it was inadequate and will require still more intervention" (p.6). Furthermore, he thinks "...that the Fed still has many effective instruments at its disposal..." (ibid.).

The monetary view of Dr. Nye is consistent to Friedmanian analysis of the Great Depression in the 1930's. The major problem then was insufficient liquidity. And also in his view, "...the only policy in the 1930s that helped the recovery was Roosevelt's abandonment of the Gold Standard in 1934" (p.4).

Moreover, for Dr. Nye, US economy has already experienced "notable recovery". He based his idea of recovery on the improved performance of the stock market, rising price levels, and higher GDP.

And finally, his assessment of inflation is also contrary to Austrian analysis. He does not like high inflation, but considers low inflation as an "evidence that we need more not less monetary expansion" (p.6).

4. Personal Comment

Dr. Ron Paul, schooled in Austrian school, diasgrees with Dr. Nye's monetary view. Dr. Nye's interpretation as to the three separate causes of 2008 crisis ignores the critical role of the Fed. For him, the real estate bubble, banking crisis, and macroeconomic collapse had no connection with each other and he failed to see their connection to the action of the Federal Reserve.

In Dr. Paul's congressional report, “The U. S. Dollar and the World Economy” dated September 6, 2001, he argued that the Fed has the primary responsibility for the 2008 crisis and real estate bubble in particular. According to him, it all started with Federal Reserve credit expansion to the tune of $3.2 trillion (Pillars of Prosperity, 2008, p.219). Here is my summary of that connection:

"It all started with Federal Reserve credit expansion. Huge size of the credit went into real estate, stirred up by the '$3.2 trillion of debt maintained by the GSEs' (p. 219). The GSEs by the way, was composed of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank. The GSEs received a special treatment through low interest rates and the Federal Reserve monetizing them 'just as if they were U. S. Treasury bills' (p. 220). This action of the Federal Reserve sent an attractive message to foreign central banks causing these banks to purchase great quantity of GSEs."

Ron Paul also contradicted Dr. Nye's idea about quantitative easing. In September 14, 2012, Dr. Paul asserts, “Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious.”

These are just two examples where Ron Paul as representative of the Austrian school differed from Dr. Nye's monetary perspective.

However, regardless of Dr. Nye's positive assessment of quantitative easing, which Austrian economists consider erroneous, still he did not believe that quantitative easing as far as the Philippine economy is concerned would greatly benefit the country without consistent adjustment in micro-economic regulations. QE does not create growth and has little effect on local economy. For him, even increase in tax revenues is incapable to improve the economy without regulatory reforms. He saw the primary function of monetary policy as "a means to smooth out short term fluctuations and provide the proper background conditions to support development" (p.8). He added, "The purpose of monetary policy should be to allow the real economy to perform better" (ibid.).

Part 2 - Summaries of 6 Related Articles

Part 3 - Mises' Lecture

Part 4 - Biblical Critique of Inflation

The Intelligent Woman's Guide to Inflation

I suspend my study of Bastiat’s “The Law” not only because the material is quite difficult to handle, but also because my reading interest shifted to Christian economics. The present article is a summary and reflection of Chapter 2 of Gary North’s “Introduction to Christian Economics”. North gave a very interesting title to this chapter, “The Intelligent Woman’s Guide to Inflation”.

Chapter 2 is all about inflation. For North, this is a very important subject that every taxpayer has to understand. To him, inflation is “the most pressing economic question” (Gary North, An Introduction to Christian Economics, 1974, p. 20). In chapter 3, he also said among the dangers to free market economy, inflation is the greatest both historically and theoretically (p. 29).

In explaining inflation, North deals with 6 interrelated subjects, but I only want to focus on 4 of them – definition of inflation, basic properties of money, origin of modern banking and inflationary policies.

Meaning of Inflation

North started his essay with a working definition of inflation. He identified two basic definitions:

1. An increase of the money supply; and

2. An increase in the prices of goods and services

Number 2 is the definition known by the public, but North used the term in his essay using the first definition.

Money’s Properties

North then enumerated the basic properties of money. These are durability, transportability, divisibility and scarcity. Understanding the importance of the fourth property is critical to see the illusory foundation of existing monetary system, which violates this important basic property of money.

Origin of Modern Banking

Third, North narrated a brief history for the origin of modern banking. He started with ancient history and then proceeded to medieval period.

During ancient time, says North, the Roman Empire practiced inflation by counterfeiting the existing gold and silver coins. The Empire did this by “adding cheap metals into the molten gold or silver, yet calling the resulting coins pure” (p.21). Such deception resulted to the reduction of value of coins and the loss of their purchasing power.

In the Medieval Period, the role of the Roman Empire was replaced by goldsmiths and metalworkers who were later known as “bankers”. They are the ones who introduced the idea of storing precious metals. The people trusted them and so the silver and gold coins of the public were given to them for safekeeping. The people received IOUs as “money substitutes” for their coins in the vault. However, people became more interested with money substitutes than gold or silver coins. Bankers devised a scheme to maximize their profit. They issued more IOUs than what they actually possessed in their banks believing that people will not take their deposits simultaneously.

Such simultaneous withdrawal is described as “bank run”. Bankers fear such event. Such panic on the part of depositors is occasioned by the loss of confidence in the ability of the banks to meet their responsibilities. The 1930’s is usually referenced as a typical example of such panic where 9,000 banks collapsed (p.22).

Inflationary Policies

North then describes what he called as “the central flaw of all inflationary policies” particularly in relation to the development of paper money. He explains it as follows:

“…citizens decided to trade certain money metals for scarce consumer goods and services. They later consented to use paper claims to money metals as convenient substitutes. But paper and ink are in large supply, unlike gold and silver; it is far easier to print an IOU for a thousand silver dollars than it is to mine the silver, smelt it, and form it into the actual thousand coins.” (p. 22).

This development destroys the fourth basic property of money, which is scarcity. Such violation results to devaluation of existing monetary unit or the increase in the value of goods and services.

The sectors of society that suffer the most in inflating the money supply are those who depend on fixed salary while the groups that benefit from inflation are politicians, bankers and the suppliers of goods and services to the government.

To illustrate the economic destruction caused by inflation, North returned to Germany’s experience in the early 1920’s. Germany that time was operating “over 300 paper mills and 2,000 printing establishments” to print German marks, Germany’s money that time. We were told that the change in the value of Germany’s money that time was so fast that its original value in the morning was no longer the same in the evening. I think there is no worst case to illustrate how inflation destroyed Germany’s economy that time than the fact that a loaf of bread would cost 1.25 trillion marks. Unemployment became widespread, savings were wiped out and German marks turned worthless. Economic depression prepared the way for the rise of the Nazi dictator.

Personal Response

Do Americans learn from Germany’s experience? The existing economic situation of the US tells us that they did not learn from the past, but is actually heading towards similar path of economic destruction. When North wrote this essay, the price of gold was $41 per ounce and US national debt was $353 billion. After 44 years, gold now costs $1,598 per ounce and US national debt is closed to $17 trillion. I just wonder if Gary North’s analysis is correct, how come his predicted “economic collapse” is not yet taking place? Instead, we have been hearing from mainstream news that 2008 economic crisis has already been solved! Or maybe, “the day of reckoning” has just been extended due to Federal Reserve’s commitment to indefinite QEs.

Now, why am I interested in all of this? Why worry about American crisis whereas the Philippine economy is now experiencing a boom?

I am not an economist, but I am entitled to my own opinion. I suspect that our “economic boom” is not based on solid economic practices. It is a “spill out” of what’s happening both in the US and the EU. At least in their case, reality is setting in and I am hoping that economic illusion would gradually fade. But they are transporting such illusion into our shore and we welcome it with open arms.

I do not doubt that those at the top are ready to reap the financial rewards of living in economic illusion. But as all artificial “booms” end in “busts”, I think it is important that Filipinos should understand the role of “imported inflation” that drives the growth in our stock market for us not to be caught unprepared once this illusion starts to fade.

Note: Originally posted in Studies in Economics and mirrored in Acts of the New Commonwealth last April 2, 2013

Inflation and Domestic Chaos

"The weak yen is a bigger economic risk than North Korean threats", said South Korean Finance Minister Hyun Oh Seok as reported in The Korea Herald last May 30, 2013. South Korea is blaming Japan's monetary policy for its negative impact on their export industry. On the other hand, Koichi Hamada, an economic adviser of Prime Minister Shinzo Abe told South Korea to stop blaming Japan. Instead South Korea could also take care of their own economy by expanding their monetary supply.

Will South Korea follow the foot step of Japan? I have no knowledge about the extent of Austrian influence in South Korea, but I am hoping that economic adviser of Park administration would share similar insight as found in David Howden's June 3 article.

Based on Howden's article, as Japan will inject $1.4 trillion dollars into her economy over the next 2 years, she is actually heading into domestic chaos in the long run. The goal for the increase in monetary supply is to boost export industry. The immediate impact of such act of currency depreciation is difficult to see. Howden, a convinced Misesian, is able to identify long-term detrimental consequences of inflating the money supply. He names four: reduction of foreign investment, increase in production cost, overconsumption and malinvestment. 

I wish that not only South Korea, but also top economic advisers in other countries would be able to see the wisdom of Mises' economic analysis. Howden warns, "If the policy is ineffective in the long run, Mises demonstrated that the short-run gains are illusory. The same monetary policy aimed at depreciating the currency to promote international trade will reap domestic chaos."

Related Article:

Japan Just Gave Us a Warning of What's Coming Our Way

The Biggest Economic Problem

In the US, both the chairman of Federal Reserve and politicians agree that unemployment is the biggest economic problem. The winnable candidate therefore in this upcoming election in November is the one who can create and increase the number of jobs. However, according to a recent telephone survey, the public think differently. They are now economically informed. For them, inflation is the biggest economic problem.

Here in South Korea, my impression as a result of brief observation is that the people are aware about the external source of their national economic crisis even though inflation is not particularly identified. Despite my failure to understand the language, I am surprised to see the face of Bernanke appearing on mainstream news. In the Korea Herald, an English newspaper, I also keep on encountering economic news, which are almost similar to what I have been reading in the web. Also, when I borrowed books from the public library here in Gwacheon, South Korea, I appreciate that economic professors like Sunhyuk Kim and Doh Chull Shin of Seoul National University Press are aware about the external source of the Korean economic crisis. I am referring to Economic Crisis and Dual Transition in Korea: A Case Study in Comparative Perspective.

In the Philippines, in my opinion, we cannot see such kind of awareness. It is, as if, you need to come out from the country to see its economic reality. A Filipina teaching here in South Korea asked me a question if there is still hope for the Philippines. I told her, “Yes, there is hope provided that we have Filipino politicians with qualities of statesmanship, knowledge, and courage to reform the Philippine monetary system.” Unfortunately, at present we cannot find such breed of politician.

Our people feel the economic pressure, but they fail to identify the real cause of the problem. Many are still looking for political changes as their only hope.

I do not doubt the vital role of the politicians for the country to experience economic reform. However, I think nothing will happen if we will passively wait for initiative coming from them.  It is more proper to expect financial and economic reform from the intellectual community – educators, religious leaders, journalists, and bloggers. Such an intellectual movement will create economically educated masses that will provide the necessary base to pressure legislators to pass bills on monetary and financial reform.

I am still praying and looking for a public servant whose advocacy focuses on monetary reforms just like what Ron Paul has been doing in the US. Kindly inform me if you happen to encounter one.

Grace and peace!

2nd Week of September

The public has already forgotten 9/11. There is no use of remembering it. The people don’t care whoever is behind that attack and whatever the motive is. And besides, there is nothing we can do about it. Why be anxious about things you can do nothing about? Just pray, stay positive, keep your routine, and be happy with your family.

The important thing, life returns to normal. Though it is more difficult, it is preferable than what those doomsayers are telling us. Nobody knows about the future and you don’t even know if you are still alive by tomorrow. Be at peace with yourself and with everyone.

After 11 years, the 2nd week of September 2012 reminds us again of 9/11, but almost everyone is no longer interested.

Reaching the 3rd week of September, as I browse the web, I do not remember how exactly I encounter three alarming news that happened during the 2nd week of September.

China Sells Oil Using Yuan

The first alarming news is about the decision of China last September 6 to sell oil using Yuan. Kenneth Schortgen Jr. reported this at examiner.com last September 12. To him, this decision will certainly affect the status of petrodollar, the dollar backed up by oil. The supremacy of the US dollar as world reserve currency received a big blow last Thursday. In fact, the reporter claims that on that day, the US dollar shows indication of weakness on the index.

The day after that decision, Russia made an official pronouncement that it will support China with all its needed oil using Yuan.

The decision of these two powerful countries will surely affect global economy and politics. There is a tendency that other countries will also trade oil bypassing the US dollar. This series of nations’ decisions will negatively impact the US economy. And not only that, Schortgen Jr. even predicts that the power of the US to economically sanction Iran and its influence in the entire Middle East will diminish since Iran would have an alternative to sell its oil to China in Yuan.

Schortgen Jr. affirming the message of Lindsey Williams, the September 6 decision of China is a great landmark in the history of the US dollar. Starting September 6, any nation wishing to trade oil has now an option to use Yuan as a medium of exchange instead of the US dollar. Definitely, this will affect the life of everyone. It is simply surprising that despite of the utmost importance of this decision on world economy and finance, mainstream media was unanimously silent.

As a student of Austrian economics, reading the above news, my feeling is a mixture of anxiety and anticipation. Since the 1970s, Dr. Ron Paul has been predicting that these things will undoubtedly happen. In fact, three days prior to the decision of China, the Congressman untiringly repeated again his message that unless the US dollar returns to its connection to gold, the world will abandon its currency.

Quantitative Easing 3

The second alarming news that happened during the 2nd week of September 2012 was the announcement of the Federal Reserve of pumping a combined $85 billion a month into the money supply. This was reported by Annalyn Censky atCNNMoney last September 13.

There is nothing new in this report except for the figure. As I said in my previous post, I do not doubt the sincerity of Bernanke to stimulate spending and employment, but his economic and monetary blindness due to his Keynesian-monetarist outlook. Lower interest rates and calling for new policies from the US Congress are the typical strategy of the Fed in addition to QE to cure unemployment. But Bernanke’s call falls on deaf ears due to approaching election come November. The Republicans’ criticism of QE as setting “the economy up for rapid inflation in the future” is unbelievable. Their misconception about inflation causes them not to see that QE is inflation itself.

Iran as the New Target

The third alarming news that happened during the 2nd week of September was about the positioning of naval forces of 25 nations at the Strait of Hormuz. Sean Rayment reported this last September 15 at The Telegraph.

The US and Britain lead this naval positioning. The reporter said that the reasons for the positioning include the potential war that might explode between Iran and Israel and war games.

To safeguard her existence, Israel would never tolerate the enhancement of Iran’s nuclear weapons and thinking of a pre-emptive strike. However, it was anticipated that Iran would retaliate that will affect the supply of oil in case Iran would decide to block the shipping lane. Rayment further reports that such blockade would have serious consequences on the economies of Britain, EU, US, and Japan.

Comments and Conclusion

The three alarming news that occurred during the 2nd week of September are interconnected if we see them from the vantage point of control for oil and currency war. It is now available to the public through the speech of Congressman Paul that Saddam Hussein was thrown out of power due to his decision to sell oil in euro. Now that the Federal Reserve keeps on pumping new money, both China and Russia refuse to accept American inflation into their economies. And the only way they can protect their economies is by trading oil in other currency except for the US dollar. Even the pressure against Iran can also be traced with its connection to oil and currency war. It was reported that Iran decided to no longer sell its oil in US dollar, but in euro starting 2009. It is as if Iran followed the footstep of Iraq. Is this not the real reason for the increasing hostility against Iran? How about China and Russia? How would US respond to the threat to the dollar supremacy resulting from the combined decision of these two countries to trade oil in Yuan?

Two Other Alarming News  on September 11, 2012

Killing of Ambassador Christopher Stevens in Libya

Japan Declared Nationalization of a Traditional Chinese Territory

Personal Prayer

Creator of heaven and earth; the God of Abraham, Isaac, and Jacob; you remain faithful in your covenant.  Thank you that you provided the way of peace back to you through your Son, Jesus Christ our Lord.

You are the God who never forgets. You always remember your people. You sustain your creation. You provide our needs. You gave us strength and the ability to work. You cause the sun to rise on the evil and the good, and you send rain on the righteous and the unrighteous.

Help us not forget your goodness. Help us walk by faith and not by sight. Help us live according to the light of your word.

Forgive us for our ingratitude. Forgive us for our going in our own ways. Forgive us for thrusting you behind our backs. Forgive our generation for not believing in your existence.

You remain the sovereign God despite of human rejection. You still rule. You hold governments in your mighty hand. Even though there are human affairs we cannot understand, we still trust in you.

We pray for peace – peace with you, peace within ourselves, peace with those who differ from us, and peace with our environment. We pray this in the name above every name, who himself is our peace, Jesus our Lord, the Prince of Peace. Amen!

Note: First posted on September 17, 2012