In 1988 our business was slow and I had doubts as to whether it was wise to stay selling gold and silver. I began to question whether precious metals made sense and if the economic crisis I envisioned would ever come to pass. Would we ever see the inflation of 1979 – 1980 again? At the time I didn’t realize that the economy had been rescued by the advent of computerization and the related technologies. Enough new wealth was created to bolster Wall Street and finance the government’s ridiculous spending. An inflationary crisis was forestalled.
I read and reread the books of Hayek, Hazlitt, Mises, Rothbard and Sennholz; the geniuses of the Austrian school of economics. That convinced me to hang on through a few more difficult years. In 1992, Bill Clinton was elected and people began to buy gold again. The advocates of Keynesianism were in charge but the strength of the technology boom offset the damage from big government and its monetary mismanagement.
The trouble that unfolded in 2001 and 2008 were predictable and easily explained by Ludwig von Mises (1881-1973): “It is true that credit expansion at first creates an economic boom. But the artificial prosperity of the easy money orgy of a few years must finally lead to a slump and depression. Credit expansion is very popular with politicians who do not worry about tomorrow.” That’s precisely what happened. The expansion of money and credit led to the stock market debacle of 2001 and the boom and bust in housing.
Unfortunately, the bust has been so severe that the government is still pushing the pedal on the inflation meter. Mises warned, “The longer inflation goes on the more detrimental become its inextricable evils, and the more difficult it is to stop it spontaneously. No inflation can ever go on forever. It must result in the total devaluation of the currency system if it is not stopped in time.”
Despite the historical record of an almost total failure of paper currencies and fiat money, our monetary authorities believe that a measure of inflation is good. History teaches us that the process of inflating wherein the government creates money out of thin air to pay its bills inevitably leads to disaster. Does the Federal Reserve know the history of unbacked paper money? They act like they don’t. They’re trying to fool us into thinking inflation is good. Perhaps they have no choice but to print. The Treasury can’t borrow and tax enough and the politicians won’t curb government spending. So we monetize the debt and pay the bills by watering down the milk. Nothing good has ever come of it, yet the professors at the helm assure us they are clever enough to pull it off.
It’s not going to work. There will be hell to pay. We got a taste of it in 2008, but that was a walk in the park compared to what’s ahead. To stop inflating, we would have to stop spending and that’s not going to happen. Our monetary authorities believe that whatever problem or crisis confronts us can only be cured by inflating. As former Treasury Secretary Timothy Geithner put it in a recent book, “The government must be ready to intervene with overwhelming force to prevent a systemic crisis.” That means enormous new money creation.
That’s why a great shuffling of wealth and a financial reset is inevitable. The savers will be obliterated. Mises explains it. “Money is a phenomenon of the market, a medium of exchange. But governments think of money as a product of government activity. Money is not a creation of the government. This should be repeated again and again. It is government interference that has destroyed money in the past and it is government interference that is destroying money again… a thing cannot serve as money if the government has the right to increase its quantity ad libitum [without restraint].
“Inflationism cannot last; if not radically stopped in time, it must lead inexorably to a complete breakdown. It is an expedient of people who do not care a whit for the future of their nation and its civilization. Continued inflation inevitably leads to catastrophe.”