HOUSE OF CARDS
Forty-two years ago I started Investment Rarities after reading a book called Silver Profits in the Seventies. Silver rose from $1.65 to $50. However, I never felt that silver had lived up to its promise. It should have been higher over the years. Most of the silver ever mined was used up by industry. The above ground supply was gone and yet the price languished.
I stuck with it through some mighty lean years because I had become a fervent believer that runaway inflation was inevitable. Today the bookstores are full of tomes warning about a pending crisis. Back then we had only a few publications every decade that suggested a coming crisis. However, we did have the books of the Austrian School economists, Mises, Hayek, Rothbard, Hazlitt, and Sennholz. These authors consistently forecast a bad ending for countries that resorted to inflating to pay their bills. Furthermore, they were death on government intervention, credit excess, high taxes, and socialism. They endorsed the market system and constructed the moral high ground on which capitalism rested.
However, forty-two years is a long time to preach about the inevitability of runaway inflation without it happening. Most assuredly we have experienced the booms and bust the Austrian School warns will accompany credit excess. Yet, the severe inflation that makes our financial affairs completely unmanageable remains at bay. Certainly we’ve had inflation. The dollar has lost 96% of its purchasing power in my lifetime. But we have been able to live with it. Now our bankers, politicians, and brokers wish to encourage inflation. In Washington and Wall Street inflation has gone from being our enemy to our friend and that is crazy. As economist Jorg Hulsman points out, “Fiat inflation is a juggernaut of social, economic, cultural, and spiritual destruction.” What he means is that inflation is how we pay for the welfare state and that makes the government bigger and the citizens worse off.
So what happened to the hyperinflation that was forecast over the years? We almost had it in 1979-1980 when interest rates were hiked to 19%. Then it became subdued despite the fact that the government kept on spending and financing its deficits with newly created money. We have been the chief inflationist in the world and it still hasn’t caught up with us. One reason is that we started shipping money around the world to buy things. We exported our inflation for imports. We jacked up price inflation around the world while keeping it under control domestically.
Then the rest of the world caught on. They started printing money to pay for their spending just like the U.S. So now we have the entire world inflating. Look at Japan and soon the European Union covering every dime the government spends (over what it takes in) with the printing press. Now it’s not the U.S. alone that will crash and burn, it’s the whole world.
The late economist Murray Rothbard told us what happens when inflation goes international: “At the end of the road will be a horrendous worldwide hyperinflation, with no way of escaping into sounder or less inflated currencies.”
When a nation embraces dishonesty as a policy and waters down its money it plants the seeds of financial destruction. What will come from the greatest monetary sin in history is the greatest economic punishment in history. You only have to think about it. $100 trillion in liabilities, $18 trillion in debt, trillions created each year to goose the economy, and trillions more created around the world. The more new money conjured up, the more that’s needed. It can’t go on much longer. The cracks in the foundation are visible. This structure is coming down.