THE GREAT SWINDLE
Never before has it been clearer that our social and economic future will be disastrous. The trend is not our friend. Most recently our loose money and credit policies created an unsustainable boom that turned into a bust. Attempts to reignite the boom aren’t working and the failure of welfarism in Europe threatens to capsize world economies.
It’s hard to comprehend the mess we’re in. Almost half the people are on some kind of government dole. A significant percentage have character issues that render them unemployable.
Entitlement costs are out of control. The big spenders aim to spend more. The welfare state is marching towards bankruptcy and oblivion.
As government deficits rise and the economy stalls money creation will rise dramatically. An economic collapse will be postponed by issuing new money out of thin air. Inevitably this form of counterfeiting will cause goods and services to become shockingly expensive. Since our spending sins are so outrageous the inflationary consequences will be agonizing.
No one ever explained the damage that inflation does like the great Libertarian writer for Newsweek and the New York Times, Henry Hazlitt (1894 – 1993). He wrote, “When the Federal Reserve banks buy government notes or bonds in the open market, they pay for them, directly or indirectly, by creating money. This is what is known as ‘monetizing’ the public debt. Inflation goes on as long as this goes on.”
The consequences are dire indeed. “Inflation must always end in a crisis and a slump, and worse than the slump itself may be the public delusion that the slump has been caused, not by the previous inflating, but by the inherent defects of a free market.”
Hazlitt warned, “It is harmful because it depreciates the value of the monetary unit, raises everybody’s cost of living, imposes what is in effect a tax on the poorest…wipes out the value of past savings, discourages future savings, redistributes wealth and income wantonly, encourages and rewards speculation and gambling at the expense of thrift and work, undermines confidence in the justice of a free enterprise system, and corrupts public and private morals.”
He continued, “A period of inflation is almost inevitably also a period when demagogy and antibusiness mentality are rampant. If implacable enemies of the country had deliberately set out to undermine and destroy the incentives of the middle classes to work and save, they could hardly have contrived a more effective set of weapons than the present combination of inflation, subsidies, handouts, and confiscatory taxes that our own politicians have imposed upon us.”
Mr. Hazlitt explained further, “In a free enterprise system, with an honest and stable money, there is dominantly a close link between effort and productivity on the one hand, and economic reward on the other. Inflation severs this link. Reward comes to depend less and less on effort and production, and more and more on successful gambling and luck.”
He continued his litany of warnings, “It is not merely that inflation breeds dishonesty in a nation. Inflation is itself a dishonest act on the part of government, and sets the example for private citizens. When modern governments inflate by increasing the paper-money supply, directly or indirectly, they do in principle what kings once did when they clipped coins. Diluting the money supply with paper is the moral equivalent of diluting the milk supply with water. Notwithstanding all the pious pretenses of governments that inflation is some evil visitation from without, inflation is practically always the result of deliberate governmental policy.”
Another excellent economist Hans Sennholz wrote, “If government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequences.”
In 1931 Mr. Brescioni – Turroni wrote of the Weimar inflation in Germany, “It annihilated thrift…it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty. It was a distressing preoccupation and constant torment of innumerable families; it poisoned the German people by spreading among all classes the spirit of speculation and by diverting them from proper and regular work, and it was the cause of incessant political and moral disturbances.” That was in 1931, before the hell that followed.
In 1876 Andrew Dickson White wrote of the great French inflation of the 1790’s, “With prices soaring and the value of money savings rapidly diminishing, an early effect was the obliteration of thrift. Accompanying this was a cancerous increase in speculation and gambling. Stockjobbing became rife. More and more people began to see the advantages of borrowing and later paying off in depreciated money. A great debtor class grew up whose interest was to keep the inflation going. Workers, finding themselves with less and less real pay in terms of what their wages would buy, while others grew rich by gambling, began to lose interest in steady work. The evaporation of the incomes and savings of the lower and middle classes, and the sudden enrichment of speculators, with their ostentatious luxury, led to mounting social resentment and unrest.” Then came Napoleon.
All of this should give you insight into the future. Some of it is already happening. Nobody has ever created as much money out of thin air as the U.S. Soon you’ll be hearing the term quadrillion. It’s what comes after a trillion. The impact of newly created money generally takes time before it is felt in rising prices. Nor does it hit all goods and services uniformly. Government spokespersons and left wing economists assure us that inflation is not a problem. They are determined to keep on spending. However, price inflation is already worse than what the government’s statistics indicate.
Going forward it probably won’t be too many dollars chasing too few goods that will cause inflation to roar. It’s the enormous overabundance of dollars in the world that will strike the dollar down in foreign exchange markets. Because of the European crisis the dollar is getting a boost in demand. That will not last. The trend for the dollar is down. When the dollar declines internationally all commodities rise. They become more expensive. That’s where the great inflationary crisis is most likely to strike. Once underway it can turn into massive dollar dumping. In that scenario the government couldn’t borrow a dime and only profligate printing would pay the bills. Then you will have to ask, “What comes after a quadrillion?”