Posts Tagged ‘Price Inflation’

After years of the US Federal Government debt financing wars, foreign nations holding US Debt were nervous of our ability to repay. As a result they began to call on this debt by requesting the gold their dollars were promising. Fearing gold reserves would run dry and the dollar would fail President Nixon removed the United States from the gold standard in 1971. Upon removing the United States from the gold standard President Nixon said “we are all Keynesians now”.

Since that date, to buy what $1.00 would buy in 1971 you would need $5.51 in 2011. That is over a 500% decrease in the buying power of the dollar.

Since that date, the price of most food and other staples has increased by over 700%. Homes, automobiles, and other items also increased by over 700% in the same time.

Since that date, the size of our national debt has risen from roughly $500 Billion to roughly $15,000 Billion or $15 trillion ($15,000,000,000,000.00)

It is important to note that prior to 1971 we may have been on a gold standard but we were already following many Keynesian theories on economic policy. (Hence the $500B in debt, and the first trade deficit in history)

More systemic problems originated in 1913 when the Federal Reserve System was implemented. I will talk about this in another post.

Full on Keynesian economic theory has been in practice for decades now and the results have been obvious.

– The Federal Government is much, much bigger
– The Federal Debt is much, much bigger
– The price of goods and services are much, much higher
– Wages are higher, but have not kept pace with price inflation

Why then are people (particularly politicians) still clinging to Keynesian economic theory? Why are most college courses teaching the Keynesian theory almost exclusively?

The positive results are hard to ignore, but easy to dismiss. Following the ideas of Keynes led to a remarkable and fast growth of wealth and business in the United States. But as the old adage goes, it was too good to be true.

The Keynesian growth was/is unsustainable. It is primarily based on large amounts of debt and the debtors are/were massively over leveraged. I have few qualms with bank loans and debt because they have an important role in the market. The loans are in fact a product being supplied by the banks and the individual or business in debt is the purchaser paying interest as payment for the product (principle). However….

The unsustainability of debt began when the fascist relationship between Big Government and corporate banks was mutually benefited by loose lending practices. By this I mean that the federal government encouraged and mandated lower requirements for individuals getting loans. (Specifically home loans) Banks obliged because they were betting on small amounts of foreclosures and subsequent resales at higher prices to boost profits.

The big banks also were almost assuredly guaranteed safety by the federal government insiders who promised them they would be taken care of if the bubble burst, and they were. (TARP, Bailouts, QE1, QE2). So how did Big Government benefit?

The big government insiders used their positions of power to make millions betting on the housing market and investing in banks that would eventually be given federal favoritism. They made short sales, created credit default swaps, utilized fractional reserve lending and gambled with others investments. When the bubble burst and people began to see what was happening, the Federal Government via the Federal Reserve stepped in and said, “do not worry, we will save the markets, banks, and individuals”.

The heroes in our Federal Government saved us again! Hooray!

Not so fast. The policy of bailouts and quantitative easing has pumped trillions of dollars of “stimulus” into the economy, but at what expense? I compare it to giving a dying heroin addict more heroin to keep them from dying from withdrawal, they will continue to be addicted and die very slowly but at least they lived another day, right?.

We need an intervention! Congress needs to put the needles away and quit increasing the debt ceiling, quit running a budget deficit, quit adding to the national debt, stop waging unnecessary foreign wars, and do their jobs! Serve the American people and their best interests as they were elected to do.