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.

Redistribution Through Inflation

Too many dollars competing for a finite amount of products causes inflation, resulting in a loss of confidence in that currency which, in turn, fuels the fires of inflation.  Until recently, local governments enjoyed windfall revenues as property values skyrocketed.  When salaries increase due to cost of living increases, the tax collected increases too.  If workers’ wages move them into higher tax brackets, the percentage of tax taken from them increases also.

Taxing officials love inflation.  Hyperinflations are caused by extremely rapid growth in the supply of ‘paper’ money.  They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large stream of government expenditures.  In effect, inflation is a form of taxation in which the government gains at the expense of those who hold money while its value is declining.  Hyperinflations are very large taxation schemes.

The US Federal Reserve has been creating inflation through its QE1 and QE2 printing press extravaganza.  This has bloated the amount of fiat currency in the nation.  In Bottom Line Personal, author Irwin Kellner writes in his article “The Inflation Time Bomb Is Ticking” that our own government has set the stage for higher prices.  Since 2008, the [Fed] has kept short-term interest rates near zero and purchased hundreds of billions of dollars’ worth of US Treasury bonds, flooding the economy with money.

Kellner points out that in the past year, the cost of sugar has increased by 60%, wheat by 55%, silver by 50%, and copper by 36%.  Gasoline prices have risen steadily since Obama took office.  Nonetheless, the Fed claims that inflation is under control and sky-high commodity prices won’t derail the economic recovery. 

This claim seems improbable; in February and March of this year, energy prices rose 6.9%.  Wholesale food prices have risen more than at any time in the last 36 years, yet the federal government’s Consumer Price Index as of June 15, 2011, shows a 3.6% rate of inflation, just over the historical average of 3.4%.  This is largely because the CPI does not include prices of food and energy.

Unfortunately, food and energy costs severely affect households.  We may be facing hyperinflation levels exceeding those of the Jimmy Carter era.  Simultaneous double-digit inflation and unemployment during the 1970s should have driven the final nail into economists' use of the Keynesian economic theory, but it persists due to a short public memory and O-bumites’ desperation to buy votes with deficit spending.

Hyperinflation is nearly always caused by governments spending far beyond their ability to tax, coupled with an inevitable loss of confidence in the currency.  The national debt is nearly $14.5 trillion and mounting, and it is the result of federal deficit spending.  Whoever prints the money determines the rate of inflation.  Lenders become reluctant to lend because they are repaid in dollars that are worth much less than those that they lent.  This stagnates real economic growth.

If we continue our rampant printing of valueless dollars, more homes will be lost to foreclosure, gasoline prices will hit $5 a gallon, beans will replace pork and chicken on our dinner tables, the cost of heating and cooling homes will become prohibitive, and the number of families on welfare will increase exponentially.  Thus is the progressives’ wealth redistribution scheme.

May your gods be with you.