"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens....Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." ~ John Maynard Keynes
Further Adventures in the Quantum Wrongness Field, Economic Crisis Edition
Exclusive to STR
February 26, 2009
- 1 -
Deeper into the Wrongness
I described the common state of Wrongness in Marooned in the Quantum Wrongness Field (April, 2007). Today, the public is predictably being lured ever-deeper into Wrongness by propaganda about the economic crisis. Among other things, we are told that adding trillions of dollars in new federal debt and printing oceans of new money-from-thin-air will somehow restore prosperity.
Given that such behavior was the primary cause of the crisis, it would seem obvious that more of the same will not solve the problem. Debt doesn't create prosperity, but heavy debt can certainly vaporize prosperity, and the bailouts have so far added $27,599 in government debt for every U.S. citizen -- $110,396 per family of four. (Yes, that's just new debt). Printing money non-stop doesn't create prosperity either, as anyone in Zimbabwe can testify (do not miss the video embedded in that link), but the human ability to passionately believe in Things That Are Wrong is apparently stronger than reality itself.
For a time, anyway.
- 2 -
Why is Counterfeiting Illegal?
If printing up trillions of dollars to "stimulate spending" is going to save the economy, why do we ever put up with even the slightest recession? Just print that funky money, boys and girls! Give every citizen a high-speed color laser printer and require everyone to download the Official Dollar Jpeg Files and then print, print, PRINT those dollars nonstop, day and night! Every man, woman, and child would be a multi-billionaire, and economic activity would be red-hot forever!
Why stop at ten giant-screen TVs when you can have twenty? Heck, why not panel every wall in your mansion floor-to-ceiling with big-screen LCDs? You couldn't get them all home in your new Ferrari, but you could easily buy a fleet of vans for the job -- and hire drivers for them, too. You could buy ANYTHING YOU WANTED, every day of the year!
See what I mean? How could the economic crisis withstand that? Problem solved! -- at least if we believe the rationale for America 's current response to the financial crisis.
For some reason, we aren't handing the zillions of new dollars we are creating to just anyone. No, Our Leaders know what's best (despite their constant failure in the past) and they have decided to be picky, and to hand most (although not all) of those galactic-sized piles of your money to failed bankers (only some of whom may be guilty of teensy amounts of mortgage fraud), to failed automakers and other failed big-business honchos, to federal bureaucrats and heads of police-state agencies, and to other more-important-than-you uber-humans who will spend the money better than you would. (Our Maximum Leader also knows how to spin this better than I do [or see here], making it sound positively sensible). Like crumbs trickling down from a banquet table to the mice and roaches below, some of this trillion-dollar largess will float down to the Little People, and then Americans can be happy and rich and smug once again, as we have every right to be. America ! Hell yeah!
But somewhere, in a dark and anxious corner of our minds, we know the truth: hard work and savings are needed to create and sustain prosperity. Constantly going into debt to spend more money than you actually have while closing down productive industries and shipping the work overseas -- living like parasites on the savings and labor of other nations -- is a sure-fire way to turn a prosperous nation into a poor one. Printing mountains of money from thin air doesn't work either, since each new dollar-from-nothing reduces the value of every existing dollar -- exactly why counterfeiting is illegal. For proof, Americans need only look at their own currency, which used to be gold and silver (as the Constitution still requires*), with a fixed rate of roughly $20 per ounce of gold. As this is written, it takes 50 times more dollars to buy an ounce of gold, at $1,000 per ounce. Imagine how much new money was created (and spent or given away by the government -- instead of being used by the people for what they might have wanted) to debase the dollar to such an extent, rendering each dollar now almost worthless.
It is worth saying again: Print more dollars, and each dollar loses value. A simple chart shows how this works in the real world:
From Money Supply and Purchasing Power by Mike Hewitt and Dr. Krassimir Petrov
The chart above uses the government CPI figures for "purchasing power", and during the time covered in the chart the government has changed the way the CPI is calculated, resulting in lower rates of "official" inflation than the older methods would show (see shadowstats.com for details). In other words, the problem is even worse than the chart suggests.
We did get something for all that debt and counterfeit money -- many things, in fact: war after war [pdf], the largest military-industrial complex the world has ever seen, an intrusive and arrogant foreign policy that has made us the most hated nation around the globe, social programs that have displaced voluntarily-funded (i.e., civil) market alternatives while leading Americans into child-like dependency, an expanding police state here at home, a cruel and counterproductive war on drugs, and ominously powerful corporatist nodes like Blackwater and Halliburton and Monsanto (not to mention Big Pharma, the banking industry, and a hundred more). As I said, the power elite know how to spend your money, and in today's crisis, more than ever, we need to just stand back and let 'em work!
- 3 -
Throwing Gasoline on the Fire
"US TREASURIES ARE DOOMED for the simple reason that the United States thinks it can go on manufacturing money out of nowhere and get stupid foreigners to pay for it all by buying Treasuries . . . . WELCOME TO THE ERA OF HYPERINFLATION. Is it any wonder that gold and silver, the traditional stores of value in times of crisis, are taking off against all currencies? Hot new degree course topics for business students around the world will surely be 'The Weimar Republics of Germany and the United States, 1920 and 2009', and 'Zimbabwe and the United States -- from riches to rags'. So US Treasuries are the ultimate sucker play--zero yield and a bear market to boot -- why not save yourself the trouble and walk out into the street and stuff your money straight down the drain?" [ CAPS in original]
-- Clive Maund, Precious Metals Stocks Stalemate About to End
Moving gingerly back to reality, we are reminded, with a sense of horror, that even many intelligent and educated people are mired in the Quantum Wrongness Field like mastodons in the La Brea tar pits. Despite example after example of hyperinflation throughout history, Americans somehow think they will be immune. Despite the universally devastating effects of hyperinflation -- destruction of the middle class; near-total loss of value for pensions, salaries, and savings; widespread poverty and hunger; enhanced tyranny and (too often) outright war -- despite all that, people expect something different this time: unicorns and flowers, perhaps.
But even unicorns wouldn't be enough to hold back the darker reality of hyperinflation. The PBS series Commanding Heights includes an essay on the German Hyperinflation of 1923, which quotes Pearl Buck on her experience in Germany at the time, where she was visiting (Buck is most famous for her novels on China). Looking back on the experience from later in life, she wrote: "The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency." (See also this list of descriptions of 20th Century hyperinflations at the PBS site).
Morals, ethics, and decency gone, along with every last shred of prosperity: Welcome to your future, America! It is probably too late to avoid that hyperinflationary future now no matter what we do -- economist John Williams of ShadowStats.com thinks so -- but adding trillions of dollars in new debt while also printing trillions from thin air will accelerate and deepen the disaster as surely as the dark of night follows sunset. The carefully-misnamed "stimulus" that so many are cheering is the death knell for what remains of this nation's prosperity and freedom.
Government "help" is exactly what turns a short, sharp correction into a generation-long nightmare; when government stays out of the way in a financial crisis, the problem is resolved quickly, as happened in 1921, 1947, and 1981. This is perfectly in line with a well-known natural law, which states that -- as social philosopher and noted economic expert Ringo Starr once put it -- "everything government touches turns to crap." (My own formulation of the law is that "coercive government is The Worst Way to Do Anything.")
Japan and the United States, among other nations, have previously turned what might have been short downturns into decades-long economic agonies by means of the same type of "government stimulus spending" that Obama and Congress are now forcing on American taxpayers. Obama is only following in the footsteps of Bush, who promoted and signed a $700 billion bailout along with other massive giveaways, just as FDR was following in the interventionist footsteps of Herbert Hoover, despite the common myth that their policies were diametrically opposed. Big-spending "stimulus" and "job creation" efforts not only failed to quickly end the Great Depression; they dragged the problem out for years. Despite the long build-up of demand (from low consumption) during the '30s, it wasn't until after the end of World War II (during which Americans suffered rationing of meat, gasoline, tires, automobiles, shoes, and other necessities) -- in the late 1940s -- that America returned to anything one might reasonably call prosperity.
In last Sunday's San Francisco Chronicle, Carolyn Lochhead gives some relevant specifics about how government "stimulus spending" has worked historically: "Japan's Nikkei stock index peaked around 39,000 in 1989 and two decades later is languishing around 7,500. Japan's real estate market still has not recovered after 17 years. The Dow Jones index did not rebound from the 1929 U.S. stock market crash until 1954."
Today, U.S. fundamentals are far worse than they were in 1929. Our levels of debt; our diminished and crumbling manufacturing sector; the banking sector meltdown; the size of our military, of our costly overseas empire and of our parasitic government generally; not to mention the approach of both hyperinflation and Peak Oil, among other things -- all this is orders of magnitude beyond what we faced as the 1930s began. For such reasons, I believe that real recovery in the U.S. will take far longer than the quarter-century it took to finally shake off the effects of the Great Depression. Most people alive today will not be alive when (or rather, if) America returns to the level of prosperity this generation grew up taking for granted.
And that is what you get when you let government and a monopoly-chartered central bank control your nation's system of money.
* Although the United States came into being as exactly that -- a voluntary union of sovereign states -- and despite Article One, Section 10 stating clearly that "No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debt", the argument has been made (before the Supreme Court, in fact) that this clause actually means that the States can make anything whatsoever a tender in Payment of Debt, as long as the federal government decides to force that system down their throats. In fact, the Constitution explicitly prohibits the states from recognizing or allowing money other than gold and silver to circulate as legal tender, regardless of who issues it. The founders clearly meant for money in these United States to always be gold and silver (writings from the era amply confirm this), but that's the glory of our system: with the right crew on the Supreme Court, plain language in the Constitution can mean anything our rulers want it to mean. For a highly detailed look at the topic, consider Eugene C. Holloway's Gold, Money, and the U.S. Constitution series.