In the surreal Orwellian world of Keynesian liberalism, economics commentators view those who want to prevent a future collapse of the dollar as actually being responsible for a future collapse of the dollar.
In an article entitled Will Sresident Time Magazine economics idiot, Stephen Gandel, attempts to pin the coming currency collapse on lower taxes.
I shit you not.
Turns outs that it is very unlikely the Fed would cause hyper-inflation. That’s why near zero interest rates and the Fed’s early efforts to drive down long-term interest rates have done little to boost inflation. The real threat of inflation comes from tax policy, namely lower taxes. Lower taxes and the government will have a harder time paying back its debt. Investors run from our bonds and currency. Inflation ensues.
There’s so much wrong with this idiotic nonsense that I’m having a hard time figuring out where to begin.
For starters, a normal solvent economy does not run epic budget deficits; nor does it require that other nations buy its debt in order to prevent its economy from having an economic meltdown. Hence, a normal solvent government would be able to clear its debts regardless of tax rate fluctuations.
Economists and investors know that lower taxes, when combined with lower government spending, leads to expanding economic growth and actually generates a HIGHER tax revenue over the long term than a rate hike would accomplish. This economic fact can be demonstrated by a simple chart called the Laffer curve. Since investors know this to be true, they see reductions in taxes and spending as a sign that the nation will be able to pay back its debts.
It goes without saying that increasing tax revenue would be completely unnecessary if the US government operated on a balanced budget. Since a balanced budget would mean that the government is only spending what it collects in taxes, there necessarily would be no risk of a default.
But let’s look at his outrageous claim that the Fed’s actions will not cause hyper-inflation (which begs the question as to why he would even write this article in the first place.) The Fed is currently engaged in printing 600 billion dollars, with projections that it could ultimately print well over a trillion dollars by the time this round of money printing is done.
Economists have known since the dawn of fiat money that reckless printing of money by government causes hyper-inflation. America itself has a long sordid history of money printing leading to hyper-inflation that dates back to the revolutionary war period. In a span of 20 years the early American government managed to debase its currency by over 99% due to its use of the printing press. This was followed by a collapse of the Confederate currency that took place during the Civil War for the exact same reasons. Not only can the Fed’s actions cause hyper-inflation, history has already proven as much in this very country.
In fact, the reckless printing of money by government in our early history is what caused the founding fathers to mandate that only gold or silver be considered legal tender and that states may not emit bills of credit. The founders didn’t learn about hyper-inflation from an economics text book, they lived through it themselves, as we are about to do.
Next I would like to tackle his outrageous claim that ZIRP4eva and POMO have not caused any inflation. The following are prices from Oct. 23 2009 compared to today, a little over a year ago.
NYMEX West Texas Intermediate Crude Oil was $81.19 per barrel – $84.86 today
Dollar index was $75.47 – $79.15 today
Gold was at $1060.00 – $1337.90 today
DJI was at $9972.18 – $11,035.42 today
Of course silver is at an all time high, as are all the other commodities. Commodities are spiking in price because investors are trying to escape Bernanke’s printing press. In a hyper-inflationary environment, it is not true that all prices must necessarily skyrocket. Typically we see land and other long term goods remain stagnant in price, but every-day cost of living expenses explode. If one puts a little thought into this, it should become clear why this is so.
The Fed blew up a housing bubble with its ridiculously low interest rates. This occurred because interest rates affect the structure of production in an economy. Interest rates are signals between producers and investors that tell each other how much the public is saving vs. how much they are consuming. If rates are low, production shifts into long term goods as producers see this as a sign that the public has a large amount of saved capital resources.
Since we have an over-abundance of houses due to the Fed created bubble, hyper-inflation would not affect housing prices if the housing market was allowed to liquidate the bad mortgages. However, because we collectively blew our wad on houses, we have necessarily let our consumer goods manufacturing sector rot. The economy can only do so many things at one time. If housing is being artificially pumped up, other sectors of the economy must suffer a proportionate downturn.
Hence, when the money printing begins, every day consumer goods explode in price as the country experiences shortages, while housing remains flat or declines due to its relative abundance. The consumer goods shortages come from the fact that foreign countries currencies become wildly expensive compared to our own devalued currency. This makes imported goods much more costly.
During this housing boom, America bought its every day consumer goods on credit with other nations rather than manufacturing those items itself. Since the economy was necessarily pushed into housing production, it didn’t have the resources left to produce consumer goods, so it had to borrow and buy them from abroad.
Contrary to collectivist opinion, the decline in America’s consumer goods production is not related to cheap Chinese labor. Trade specialization negates the effects of cheap labor, as was evident during America’s industrial revolution and the economic expansion of the post WWII era. Cheap foreign labor was abundant during those periods, yet we didn’t outsource all of our production because interest rates and capital savings at the time kept our economy on an even keel.
The huge release of resources to the private sector that accompanied the end of war time spending and the return of millions of able bodied men caused the economy to virtually explode in growth. 1946 stands as having the largest annual productive economic growth this country has ever experienced in its recorded history by nearly every metric.
From this, we can see why some mentally retarded economists think that printing money will be a good thing for America because it appears as if this would cause us to start producing things we actually need. Mentally retarded economists think a lower dollar value will help spur exports.
However, since the act of money printing necessarily drives down interest rates, it’s clear from what I just wrote that export growth will NOT occur in a productive fashion. It can’t occur in a productive fashion because interest rates are the mechanism which tells producers what they should be focusing on. They are also the mechanism which rewards the public for saving their money. Saved capital resources are necessary in order to grow our manufacturing base. To prove my point, all one needs to do is look at China’s interest rates and what their economy is focused on producing.
To sum up, the path to economic recovery is clear and absolute:
-The government must cease spending.
-The government must let the market set interest rates.
-The government must let the markets control the production of currency.
-The government must lower taxes.
-The government must reduce and eliminate the industrial cartels created by subsidies, regulations, and government contracts.
Any deviation from these principles will not only prolong the depression, but put the nation’s currency at further risk of collapse.
Coincidentally, the Tea Party stands behind all of those points. Thus, we can say Stephen Gandel is a moron.