In Jim Cook's Archive


“So what,” said technology stock guru George Gilder in commenting on the huge amount of U.S. debt held by foreigners. That pretty much sums up the sentiments of most Americans. In fact, plenty of Americans don’t even know about the country’s debt burden, and don’t care in the least to learn.

Contemporary economics bores people. If you really want to put people to sleep, lecture your friends with the negative aspects of the ballooning trade deficit. Or talk a lot about money creation, credit excess and artificially low interest rates next time you’re at the country club and see how your golf partners begin to shun you. Nobody knows or cares much about these complex economic subjects. People don’t believe that anything can cause a crisis, and they write off those who warn about the future as kooks. Most Americans want stocks and real estate prices to keep going up, and that about covers their economic thought process.

All of these boring economic problems that nobody cares about are tied to inflating. “So what?”, Mr. Gilder might ask once again. We’ve come to believe that a little inflation is good. In fact, purposeful inflating has become a national policy promoted by government, business and the public in general.

Money and credit heat up the economy, but an inflationary boom must eventually lead to a bust. A credit-induced expansion is inevitably doomed. That’s an economic certainty. The greater the credit excess, the greater the economic pain. The answer to Mr. Gilder’s question will come with the worsening of everyone’s economic conditions. No one will ask “so what?” in the midst of panic and crisis, bad business and depression.

Exactly when this necessary and certain outcome will unfold depends on the success of the monetary authorities in containing and augmenting the greatest money and credit expansion in history. The more we inflate, the longer the collapse will be postponed. However, this policy is not without risks. Eventually, the flood of money makes people believe this policy will go on endlessly, and the amount of money in circulation will increase beyond all bounds. That causes everyone to get out of money and into assets. We have the good fortune of being able to flood the world with dollars, induce price inflation in other countries, and mitigate inflation at home. However, inflation is a policy that terminates itself. The whole world can, at some point, rush to exchange dollars for goods. Such a flight from the currency means we no longer have the option of taking the cure (recession). Instead, the dollar’s value shrinks to the point that nobody wants it.

The violent contraction that follows such a currency collapse, or the evolution of a boom into depression, will deprive consumers of goods, enforce widespread bankruptcies, cause business failures and spread impoverishment. Everyone suffers. People are quick to blame the monetary and political leaders. They vent their anger on those in charge and replace them at the polling booth. Radical agendas become mainstream as any kind of cure is sought. People become melancholy and depressed. They have found the answer to the question, “so what?”

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