America will take the biggest wager it has made in generations in just 48 days. Either President Barack Obama or GOP Presidential nominee Mitt Romney will be given the task of rebuilding America.
Liberals believe Obama is the man who can do it if he is given another four years.
Many Republicans think that another four more years of Obama will ensure the economic destruction of the United States. The GOP is resting its hopes on a Romney Presidency.
I have some bad news: The United States is in a permanent state of decline that neither candidate can, or is even willing to try to, fix.
Obama’s plan comprises the tried and failed policies of big government: renewed regulation and higher taxes. As for Romney, he hasn’t presented much of a plan to reverse the four-year recession that has all the makings of a depression.
Both Obama and Romney are big spenders. Their preference on where they will spend differs, but one fact faces them both: America has $16 trillion in Federal debt.
I believe whatever solutions they have can result only in a larger Federal deficit and the continued meltdown of the dollar.
Whoever is President will have a partner in this crime: the Federal Reserve, whose sole purpose in the 21st century is to float trillions of dollars in fiat money regardless of the future cost.
When I was in my 20s, I did the research for my father’s investment newsletter. This was a decade before the Internet. The Federal Reserve would send out a monthly newsletter, with all the data on interest rates such as the Fed funds rate, plus all the statistics on the money supply.
What I didn’t know then is that reviewing this material made us like the last of the Mohicans. In the future, the Fed wouldn’t operate with restrictions. Federal Reserve Chairman Paul Volcker, who operated the Fed first for President Jimmy Carter and then Ronald Reagan, believed the excesses of the economy needed to be squeezed out. He promptly did what a responsible central banker should do; he raised interest rates.
In 1975, America was road blocked by gasoline lines and escalating inflation. Volcker decided he had to follow what he believed to be the first fundamental obligation of the Federal Reserve: squeezing out excess money. He certainly did. The Fed increased the fed funds rate, what it charged to other banks to borrow money from 4.6 percent in January 1977 to 19.1 percent in January 1981. That kind of rate change had never been absorbed by the United States, yet Volcker bet it would cure the economic malaise that had been part of the Carter experience and that with Reagan’s tax cuts would put America back to work.
There was a price for this aggressive action taken by the Fed, especially in the farm and commodity sectors, which underwent a rolling recession. Yet because of it and the stability that was returned to the dollar, the U.S. began two decades of unsurpassed growth. It also made America an oasis for foreigners to invest their money.
I remember commenting to my dad in 1982 that I was surprised that M3 money supply (a large measure of the money in the economy) was declining.
He said something about the Fed fixing the excesses of the 1970s. By then, he had told his subscribers to sell gold and to accumulate Treasury notes, some which paid 15 percent interest. He believed the actions of the Fed would strengthen the dollar, and he was right.
Because of the Fed’s intervention, the Nation was saved from dollar maelstrom. Instead, the great economic expansion lay ahead, a period during which the Dow Jones Industrial Average would rise more than tenfold. And the dollar would reach heights never achieved before against other currencies.
This Isn’t Your Father’s Fed
Since 9/11, the Federal Reserve has rejected any obligation to protect the integrity of the dollar. It has created trillions of dollars out of thin air to fend off the liquidity crisis that began in 2008 and persists to this day.
Congress and the past two Presidents have played a role in making the dollar into Monopoly money. The Troubled Asset Relief Program bank bailout added $700 billion into the coffers of big banks. In the HBO movie “Too Big to Fail,” the question asked at the end is whether the banks can be counted on to lend it. The conclusion by the Chairman of the Federal Reserve and the Secretary of the Treasury is that of course they will.
Yet they didn’t. Like a gambling addict, the big banks have just doubled down on this easy money. And like any gambler, they will lose it, too. It won’t be just their loss but the Nation’s loss while the United States continues to forfeit its superpower status.
In his 2009 book End the Fed, Representative Ron Paul (R-Texas) writes:
The Fed itself claims that part of its job is to keep inflation in check. This is something like the tobacco industry claiming that it is trying to stop smoking or the automobile industry claiming it is trying to control road congestion. The Fed is in the business of generating inflation… the entire reason for the Fed’s existence is to generate more, not less, of it.
Paul is dead right; in the past decade, the Fed has given Washington a book of checks to accumulate as much debt as it wants. And from what I have seen proposed by Obama and Romney, they plan to spend the Fed’s windfall like a homeless person would spend $1 million in lottery winnings.
In the first day of Economics 101, my professor pulled an apple from his desk (that was no doubt given to him by a suck-up) and asked: “What do you think this apple is worth?”
There was a lot of chattering. People said it was worth maybe a nickel (don’t forget this was in 1976).
Then the professor asked: “What is it worth if I told you that it was the only apple left in the world?”
We were all stupid teenagers, so we missed his point, which was that it would be priceless.
The professor taught us over the next eight months. We came to understand that the value of one apple would be immeasurable.
That is the problem the President-elect faces. Consider it when you look at this graph:
The amount of U.S. dollars that is sloshing around has doubled in the past four years. America has never seen that kind of monetary eruption. With the exception of Weimar Germany and countries ruled by Latin dictators, neither has any other nation.
This is surely a prescription for the dollar’s destruction. And yet neither Presidential candidate will even mention the impending crisis. That should be all you need to know about getting out of U.S. dollar instruments.
Yours in good times and bad,
Editor, Myers’ Energy & Gold Report
Editor’s note: It’s time to make your submissions for this month’s You Sound Off! feature, which will run Sept. 26. Get your submission in by Sept. 24. It should be no more than 750 words (if it is longer, we probably won’t read it). We will select the one or two we think are the best of the week to publish. We reserve the right to edit for grammar and style but will try not to alter the meaning.
Send your submissions to firstname.lastname@example.org. Please include your name, address and telephone number (only your name will be published) so we can contact you if we need to clarify something. Anonymous submissions will not be considered.–BL