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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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November 19, 2012

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Gary North

With so many economic, political, and social problems facing us today, it is crucial that we focus attention on something that is both catastrophic and inescapable.  The fear of which I speak is the chance of U.S. debt default.  There is no need to speculate on what that likelihood is, I can give you the exact number:  there is 100% chance that the U.S. will be forced to default on the debt.

I believe in the analysis supplied by Professor Lawrence Kotlikoff of Boston University.  Each year, he analyzes the statistics produced by the Congressional Budget Office on the present value – not the future value – of the unfunded liabilities of the U.S. government.  The latest figures are up by $11 trillion over the last year.  The figure today is $222 trillion.

This means that the government needs $222 trillion to invest in private capital markets that will pay about 5% per year for the next 75 years.  Problem:  the world’s capital markets are just about $222 trillion.  Then there are the unfunded liabilities of all other Western nations.  These total at least what the U.S. does, and probably far more, since the welfare state’s promises are more comprehensive outside the USA.  Conclusion:  they will all default.

Ludwig von Mises was a senior advisor to the Austrian Chamber of Commerce after World War I.  He understood monetary theory.  His book on money, The Theory of Money and Credit, had been published in 1912.

He wrote of the process of the hyperinflationary breakdown of a currency.  “People begin at first to hoard other money instead so as to have marketable goods at their disposal for unforeseen future needs – perhaps precious-metal money and foreign notes.  A further step is the adoption of foreign currency or metallic money (i.e. for all practical purposes, gold) in credit transactions.  Finally, when the domestic currency ceases to be used in retail trade, wages as well have to be paid in some other way than in pieces of paper which are then no longer good for anything.

“The collapse of an inflation policy carried to its extreme – as in the United States in 1781 and in France in 1796 does not destroy the monetary system, but only the credit money or fiat money of the State that has overestimated the effectiveness of its own policy.”

In 1949, his book Human Action discussed hyperinflation.  “Eventually a point is reached where the prices at which people would be prepared to part with ‘real’ goods discount to such an extent the expected progress in the fall of purchasing power that nobody has a sufficient amount of cash at hand to pay them.  The monetary system breaks down; all transactions in the money concerned cease; a panic makes its purchasing power vanish altogether.  People return either to barter or to the use of another kind of money.”

Hyperinflation is useless in dealing with the 75-year obligations of the federal government to support old people through Social Security, Medicare, Medicaid, and federal pensions.  These obligations are inter-generational.  Hyperinflation lasts for months, not decades.  When the government ends its policy of hyperinflation, it finds that it is still saddled with these obligations.

This means that the government will default.  This is 100% guaranteed.