"I cannot accept, your canon that we are to judge pope and king unlike other men, with a favorable presumption that they do no wrong. If there is any presumption, it is the other way against holders of power....Power tends to corrupt, and absolute power corrupts absolutely." ~ Lord Acton
Obama's Prison Camp Economy
Exclusive to STR
Friends and clients who are just beginning to understand the truth that is Austrian economic theory are starting to ask me what I think the economy will look like over the next several years as the dollar inevitably declines. Whether the dollar lives and merely loses its status as the world's reserve currency or actually dies via an 'orderly' or sudden death, I think the result will be the same. For some period of time, perhaps weeks, perhaps years, dollars within the United States will resemble cigarettes in a prison camp'very valuable inside the camp, almost worthless outside the camp.
The reason, of course, is that the dollar is just paper. Since August 15, 1971, it has been backed not by gold or silver, but by two things: (1) oil producing countries' agreement to accept it, to the exclusion of all other paper currencies, for oil; and (2) the federal government's power to tax. United States Treasury debt is attractive to investors, like China , only as long as both legs of this two-legged stool remain strong.
The Arab oil-producing countries announced this week that they intend to establish a new currency, called the Gulfo, that will be the new exclusive currency for buying Arab oil. I believe this represents Western central planners pulling out one leg of the two-legged stool. It is a very significant event and in a real world would have been front page news on every newspaper. The impact of this decision on the dollar will start gradually as individuals absorb this information and they make billions of individual dollar-dumping economic decisions. I tell clients to imagine that the two-legged stool is underwater'its leg is missing, but it is nonetheless temporarily suspended only by its horizontal flat surface area and the ebbs and flows of the churning water surrounding it. Changes in current may keep the stool suspended for a time, but the stool will inevitably end up on the sea floor and all the sea urchins living its surface assuming that it is supported by two legs will literally have their lives turned upside down.
The 'Gulfo,' in my view, is aimed not primarily at the United States , but Iran and the Iranian Oil Bourse. Evidence of this is the fact that the Gulfo's sponsors are the Arab royal states, Saudi Arabia et al., in bed with the US , government, big oil and Wall Street from the beginning. Furthermore, Gulfo has the same corny, funny-money ring to it as the Western 'Euro' and the dollar's alleged replacement, the 'Amero.' The planners are not clever enough to come up with a truly marketable term, like, for instance: Gold. Finally, the Gulfo will not be backed by gold, silver or even oil, but backed by the intangible and inaccessible 'basket of goods' that is the monopoly-money-for-the-peasants-real-money-for-us-elites that is promoted by the Keynesians and Friedmanites in the Fed and the world's uberplanners at the BIS, the Bank of International Settlements.
The Gulfo development, together with the Iranian Oil bourse, is nevertheless significant for the dollar. It means that the central planners publicly acknowledge that the dollar is overvalued and will need to be reset by putting another currency between it and oil. That way, when reality hits and oil is perhaps $300 a barrel, the politicians and central bankers who have already agreed to this scheme can point an impotent finger at the Arabs. When the reset is concluded, $300 a barrel oil may cost only 30 Gulfos. But it will not be the fault of the Fed, taking orders from the BIS, for printing money and therefore purposefully devaluing the dollar by 75 percent against oil; it will be the Arabs' fault for starting the Gulfo. How this plays out against the West's ultimate target' Iran 'only time will tell. Whatever happens, it will be a lot easier to lie to the peasants and tell them that the loss of the dollar's purchasing power was caused by the Arabs and/or the Iranians than to admit to the crimes of counterfeiting and theft.
So with one leg of the stool already gone, how do the banksters squeeze every last bit of value out of their declining dollar franchise? You guessed it, by taxing the heck out of everyone in the prison camp. If you think the healthcare bill is anything other than a massive tax increase, you are mistaken. The only non-negotiable part of the legislation is that everyone must pay or go to jail. The tax starts immediately and the alleged benefits don't start for at least two years. Even President Obama admits that the federal government 'will go bankrupt' if health care is not passed. Huh? I thought the purpose of the health care bill was to provide 'free' or 'affordable' healthcare to all the uninsured. Until President Obama's admission, no one ever said the increased tax was the only way for the welfare state to pay its current bills. Man, hard to believe that they would lie to us like that. Thank you President Obama for telling the truth.
So if Obama is telling the truth, then when Hillary went to China and tried to coax them into buying more bonds, they must have said, 'Are you kidding, soon your dollars will not buy oil and you can't afford to pay what you already owe us unless you double the tax on the prisoners in your camp.' She then surely asked, 'OK, if we double the tax on our prisoners then will you buy our bonds?' They probably said 'We'll see.' 'How about if we also control Afghanistan pipelines to the Caspian, then will you buy our bonds?' Clinton asked. 'We'll see,' the wise Chinese replied. That's about all anyone needs to know about the real motivation behind the health care bill.
Wall Street is of course all for the health care bill because it will ultimately remove a huge expense from their P&L. The health care line item is huge, of course, only because it is an above-the-tax-line expense and therefore purchased with high purchasing power pre-tax dollars. Why not just eliminate the income tax and bring pre-tax dollars in equilibrium with post-tax dollars? Because that would weaken the state, and sensible things that weaken the state go nowhere on Capitol Hill. The basic economics of the health care plan further expose its Fabian socialist foundation. By not allowing private insurers to discriminate based on price and by making employer penalties for non-compliance less than the cost of buying private insurance, rational health insurers will ultimately get out of the market and rational employers will ultimately not offer health insurance, choosing instead to put everyone on the public dole.
Finally, a bit more evidence of the coming dollar-oil reset. The United States ' largest and most powerful energy company, Exxon, just made a major investment in natural gas. Why natural gas? Well, if you are an insider and you know that the prisoner's cigarettes (dollars) will not longer be able to purchase chocolate produced outside the prison camp (foreign oil), you are going to have to invest in a chocolate substitute that exists in large quantities within the borders of the prison camp, something like Honey Buns (natural gas).