David Hines
Curtains for the buck
By David Hines
Two decades ago the Iron Curtain rapidly crumbled. The usual story is that Reagan's policies caused the Soviet Union to spend itself into bankruptcy.
There was to be a "peace dividend." Instead, any savings were quickly spent — on both military armament and domestic waste. Replacements for the defunct bugaboo were quickly found — Colombia; Panama; Serbia; Iraq; Afghanistan. These don't have the scare factor of the USSR, but in a pinch any ogre will do. Dividends to taxpayers are few and far between; dividends to government contractors are perennial.
Only two decades after the demise of our paramount rival, the dollar is dying. In late October Iran opened its petroleum bourse, wherein oil and gas are traded in euros, rials, and other currencies besides the dollar.
This presages the eclipse of the dollar as the world reserve currency. Either that, or an imminent attack on Iran. This, also, would destroy the already weak dollar. Troops and armament are already engaged and being depleted elsewhere. With the other expenditures — e.g., bailing out banksters, buying and destroying clunkers — more aggression can only further weaken our fiscal house.
We're told that we're emerging from recession, despite a lack of jobs. The evidence for this is that taxpayer-subsidized banks are profitable; Wall Street is staggering along; and government is spending more than ever. To the jobless, this news must come as reason for jubilation.
Other nations that have been subsidizing our debt have already started to reverse their investment in the US government. Yet our politicians, despite their profligacy, may succeed for a while in kicking the can down the road. Several tactics are available:
Monetizing debt: Newly-made precedent exists. The Fed exchanged "toxic" assets for Treasury notes, creating good money out of bad instruments. The result of such money creation, however done, is mass inflation, or in the worst case, hyperinflation. Inflation cheapens debt, making it easier to repay. Unfortunately, our government is not interested in repaying anything; instead it seeks to borrow more.
Repudiation of debt: This is a drastic step, in that new loans will be hard to get. Repudiation of all T-bills would harm many retirement funds and other small investors. But it would suddenly make the government solvent. A precedent for this, sort of, is Nixon reneging on the US promise to exchange dollars for gold internationally.
Outright confiscation of resources: If inflated money won't buy government what it wants and needs, taking it at gunpoint may be necessary. FDR did it; he confiscated people's gold, paying them a fraction of its value. Since much of our military armament is currently purchased from overseas, such confiscation might be necessary with a dollar gone bust. Sellers will demand real resources instead of worthless paper. People might object to confiscation, but under the rubric of "national emergency" the cry may die to a whimper, as it did for FDR.
Internationalization of money: There has been talk of the amero. More recently, President Obama is scheduled to go to Copenhagen to sign a treaty that frankly speaks of world government and world taxation in the interest of addressing climate change. Wrapping the fiat dollar into a larger fiat currency could for a while disguise the inherent problems. That so-called "solution" also places Americans in the same boat as third-world socialist nations. The foundations of our wealth will be ransacked to redistribute wealth around the world. Two of earth's most populous nations — China and India — will not be part of the new political reshuffling. This leaves a massive reality check that cannot be overcome by government printing presses.
Mass inflation would necessitate price and wage controls. This in turn would create shortages; government control is not nearly as efficient as the market in getting resources to where they're needed. We're already seeing some of this, starting with the easy targets — high-level fiscal executives. Government officials have reserved the supposed right to dictate other wages as well.
Confiscation would require rationing. If government wants something, it would not do to let citizens have unlimited access to it. Here again we see the precursors: In the works are cap-and-trade energy rationing, and government medical rationing.
Serfdom may have come to Russian citizens in one fell swoop through revolution. Usually it comes from an accumulation of depredations, and the accommodations made to survive them. The depredations are rapidly piling up.
If the Soviet bankruptcy two decades ago brought down the Iron Curtain, one might think we would have learned some lessons about fiscal responsibility and sound currency. Instead, we have raised the socialist flag in the Soviets' stead and run ourselves bankrupt without any outside pressure. Ben Bernanke's Paper Curtain must eventually fall.
© David Hines
November 24, 2009
Two decades ago the Iron Curtain rapidly crumbled. The usual story is that Reagan's policies caused the Soviet Union to spend itself into bankruptcy.
There was to be a "peace dividend." Instead, any savings were quickly spent — on both military armament and domestic waste. Replacements for the defunct bugaboo were quickly found — Colombia; Panama; Serbia; Iraq; Afghanistan. These don't have the scare factor of the USSR, but in a pinch any ogre will do. Dividends to taxpayers are few and far between; dividends to government contractors are perennial.
Only two decades after the demise of our paramount rival, the dollar is dying. In late October Iran opened its petroleum bourse, wherein oil and gas are traded in euros, rials, and other currencies besides the dollar.
This presages the eclipse of the dollar as the world reserve currency. Either that, or an imminent attack on Iran. This, also, would destroy the already weak dollar. Troops and armament are already engaged and being depleted elsewhere. With the other expenditures — e.g., bailing out banksters, buying and destroying clunkers — more aggression can only further weaken our fiscal house.
We're told that we're emerging from recession, despite a lack of jobs. The evidence for this is that taxpayer-subsidized banks are profitable; Wall Street is staggering along; and government is spending more than ever. To the jobless, this news must come as reason for jubilation.
Other nations that have been subsidizing our debt have already started to reverse their investment in the US government. Yet our politicians, despite their profligacy, may succeed for a while in kicking the can down the road. Several tactics are available:
Monetizing debt: Newly-made precedent exists. The Fed exchanged "toxic" assets for Treasury notes, creating good money out of bad instruments. The result of such money creation, however done, is mass inflation, or in the worst case, hyperinflation. Inflation cheapens debt, making it easier to repay. Unfortunately, our government is not interested in repaying anything; instead it seeks to borrow more.
Repudiation of debt: This is a drastic step, in that new loans will be hard to get. Repudiation of all T-bills would harm many retirement funds and other small investors. But it would suddenly make the government solvent. A precedent for this, sort of, is Nixon reneging on the US promise to exchange dollars for gold internationally.
Outright confiscation of resources: If inflated money won't buy government what it wants and needs, taking it at gunpoint may be necessary. FDR did it; he confiscated people's gold, paying them a fraction of its value. Since much of our military armament is currently purchased from overseas, such confiscation might be necessary with a dollar gone bust. Sellers will demand real resources instead of worthless paper. People might object to confiscation, but under the rubric of "national emergency" the cry may die to a whimper, as it did for FDR.
Internationalization of money: There has been talk of the amero. More recently, President Obama is scheduled to go to Copenhagen to sign a treaty that frankly speaks of world government and world taxation in the interest of addressing climate change. Wrapping the fiat dollar into a larger fiat currency could for a while disguise the inherent problems. That so-called "solution" also places Americans in the same boat as third-world socialist nations. The foundations of our wealth will be ransacked to redistribute wealth around the world. Two of earth's most populous nations — China and India — will not be part of the new political reshuffling. This leaves a massive reality check that cannot be overcome by government printing presses.
Mass inflation would necessitate price and wage controls. This in turn would create shortages; government control is not nearly as efficient as the market in getting resources to where they're needed. We're already seeing some of this, starting with the easy targets — high-level fiscal executives. Government officials have reserved the supposed right to dictate other wages as well.
Confiscation would require rationing. If government wants something, it would not do to let citizens have unlimited access to it. Here again we see the precursors: In the works are cap-and-trade energy rationing, and government medical rationing.
Serfdom may have come to Russian citizens in one fell swoop through revolution. Usually it comes from an accumulation of depredations, and the accommodations made to survive them. The depredations are rapidly piling up.
If the Soviet bankruptcy two decades ago brought down the Iron Curtain, one might think we would have learned some lessons about fiscal responsibility and sound currency. Instead, we have raised the socialist flag in the Soviets' stead and run ourselves bankrupt without any outside pressure. Ben Bernanke's Paper Curtain must eventually fall.
© David Hines
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