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Friday, July 29, 2011

Hiding from History

Edmund Burke observed that “those who don’t know history are destined to repeat it.”  This truth is so threatening to progressive historians that they have resorted to factually inaccurate historical revisionism to hide it.  Regardless, one can learn valuable lessons from the past.  Economic history shows that imprudent fiscal policies erode buying power, compound economic difficulties, and create poverty and dependence.  Post World War I Germany is an excellent example.

Saddled with crushing reparations for Germans' part in that war and unable to obtain market loans to finance its debt, the Weimar Republic began to print fiat currency.  As more marks were printed, they competed for the limited supply of goods and services, causing inflation.  More inflation required more marks, creating hyperinflation.  This resulted in redenomination of the currency.  By the time that the new money arrived, banks were selling the old money to used paper dealers.  So, what has this to do with today?

The US is repeating that failed experiment.  Quantitative Easing I and II both failed, and we are about to embark on QEIII.  The Monty Pelerin group argues that despite Democrats’ hopes, the six-month QEII period produced economic deterioration rather than growth.  QE3 or QE10 will not solve underlying economic problems.  Reductions in spending and regulatory uncertainty are necessary.  Companies will not hire or invest when they cannot determine future costs and taxes.

Congress must raise the US debt ceiling in order to authorize more borrowing; still, repaying low interest loans with valueless currency cannot continue indefinitely.  Depending upon the market's reception, three outcomes are possible: there will be enough buyers in traditional credit markets to absorb the debt at "reasonable" interest rates; the Fed will institute QE3; a combination of 1 and 2 will be necessary.

The third scenario is most likely, and the expanding portion of debt that Treasury purchases will drive lending nations to demand repayment in gold or other currencies.  Eventually, Theftocrats will resort to drastic measures to keep their permanent welfare constituencies on life support.  As Ireland is considering and Argentina did in 2008, Corruptocrats’ want to start incrementally confiscating private retirement funds.

Total market capitalization of the US stock market is about $16 trillion and 40% of that is estimated to reside in IRAs and 401Ks.  They are big, visible, vulnerable, and mostly immobile targets.  This $6 trillion, if it were grabbed in some fashion, would satisfy the next 4-6 years of government deficits.  That would just cover two terms under spendthrift O-buma.

Initially, the theft transfer would require each private retirement account—this is the national sacrifice swindle—to be partly invested in Treasury certificates.  The percentage would increase until it hit 100%.  The state will have stolen the interest bearing money in those accounts and replaced it with worthless paper, just like they did with the $2.67 trillion Social Security Trust Fund

Wholesale printing of worthless dollars to enable Treasury to borrow from the Federal Reserve will resume until the dollar is redenominated.  One new progressive dollar will be worth one hundred old dollars.  A dystopian America is in our not-too-distant future.  George Soros and company will have won.

May your gods be with you.

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