Last modified: Tuesday, September 16, 2008 11:12 AM PDT
Letters to the Editor Economic problems are not new The Fannie Mae-Freddie Mac takeover by the Fed using your tax dollars just put another nail in the economic coffin of the U.S. It also marks the beginning of the era of socialism in the U.S. So how did we get in this mess? Following is a synopsis of various writings that show not only the history of our follies, but also what is in store for us in the near future. We lost a war in 1971 when we went to the Petro-dollar to save the dollar from collapse. From that time on, we have been digging the hole deeper and wider and faster. Both parties have contributed to this because, to keep the demand for the dollar high, we have implemented all kinds of trade, foreign, war and energy policies to help prop it up. Clinton tried to solve the problem and maybe even was making some progress, but debt did still rise every year because a “balanced budget” still includes borrowing if from no other source than trust funds. However, that also put us on course for a recession. You can’t balance the budget unless you cut spending. Cutting spending causes a recession because one of four jobs depends on government spending to some degree. We knew a full year before Clinton left office we were headed into a recession. Also, remember it was during the Clinton years we added “hedonic” adjustments to inflation to keep it from making the GDP negative as often. The job growth rate peaked in every sector of manufacturing from 1995 to 2000. That was not Clinton’s fault, other than he was trying to balance the budget. I bring that up because no president in recent history is to blame for the cause of what we are experiencing.We became a credit expansion society, which we became decades ago. There are only two choices Congress and any president could have made. One was to voluntarily end the credit expansion and cause a very bad recession or depression until the nation reformed. The other choice was to delay by borrowing more and hoping we could grow the economy fast enough to pay down debt without cutting government spending. To Congress, and the presidents, the advice they got from their cabinets and congressional advisers in both parties was to keep borrowing and try to find a way to grow enough so you could then tax more or get more tax revenues from the growth. But, the growth had to come first either way. You can’t have growth if government is cutting spending. You can’t raise taxes on business since that pushes prices higher, since all income, taxed or not, comes from consumers. Higher prices are a growth-killer since emerging markets were already undercutting our prices. However, since we depend on foreigners for loans, putting tariffs or trade restrictions on them hurt the dollar’s demand, and thus value, and, also, trade deficits gave foreign nations more money to lend us. In a credit expansion society, Von Mises points out, you have to keep expanding or you enter a very serious recession or depression, but, if you don’t, eventually credit expands faster and to such a degree the loans are cut off and the currency collapses. Presidents and Congress have been trapped in this “death spiral” for years. And each administration now will make it worse or cause a deep depression (we are past the point where a deep recession would get us out of the spiral). The next administration, Republican or Democrat, will still only have two choices. Whether it is Obama or McCain, they can only delay the crisis or voluntarily enter a depression, but that in and of itself will probably cause the loans to stop and collapse the currency. A depression would mean we wouldn’t have the tax revenues in enough quantity to provide services and pay interest on debt. That would cause the loans to stop coming. At that point, default on debt and massive deflation of our assets would happen, or we would try to hyper-inflate out of debt. There is no third option. There is no way to grow or tax out of it anymore. In a nutshell, folks, we’re in very deep poo. The Fed can continue to print monopoly money and put us further and further in debt. But, they can’t create credit, and, folks, credit is “real” money. No credit means no way to pay back all those loans all of us, from the federal government down to each individual, owe to the Chinese, Japanese and European banks and investors. Don’t be fooled by all the happy talk that “all is well now” being put out by the mainstream media. This is only the beginning of the worst deflationary time any of us will ever see. |
