A few years ago, in a Phoenix used book store, I spent $6.95 for a wonderful book. I regard it as one of the most prized, in a collection of well over 2,000 volumes. The book’s title is simple, but it is all encompassing. “BARNES FEDERAL CODE,” is its title. Published by Bobbs-Merrill Company in 1919, it contains 2831 pages, and the subtitle is, “Containing All Federal Statutes Of General And Public Nature Now In Force.” Only 2512 of its pages are actual text, the rest being an index. The first few pages are devoted to the Constitution. This would be superfluous today, as the Constitution is long gone, as far as the federal government is concerned, because no one seems to obey it. The book begins with statute #1 and ends with statute # 10,374. That’s it! The statutes cover every single thing the federal government did in 1919, including internal revenue, Indian reservations, government pay, departments, tariffs, shipping rules, naturalization and immigration, national parks, money, agriculture, and you name it. In 1919, there were exactly 10,374 federal laws. Today, there are tens of millions. See what has happened? In 1919, all federal laws could be encapsulated in a 5″ X 7″ book, which is 3″ thick. Today, they couldn’t be contained in a freight car, or perhaps many freight cars.
What does this have to do with economics, and the price of gold and silver? Plenty. The more laws passed, the bigger government gets, and the more it costs to run and enforce those laws. Taxes go up to pay for the larger government, and enforcing its statutes. Eventually, the cost of government is so high, that taxes cannot be raised quickly or high enough to pay the bills. What to do? Simple. Just tax things that no one ever thought were taxed, and tax them. Tax the phone bills, electric service, raise the taxes on fuel, capital gains, death, TV cable, TV dish, property transfers, and a whole host of other taxes, as I previously mentioned in a former column. (In case you didn’t know it, my previous columns can be reached by clicking on other things I have written at the end of this column.)
After these taxes have reached their limit, what to do? Simple again! Do as all nations have done, and that is “print the money” to pay the bills. While that is an over-simplification, that is exactly what happens. As the currency supply is increased, to pay for the ever-enlarging government, the currency is worth less and less, and eventually, in every nation in recorded history, those two words, “worth” and “less,” have been combined to describe the eventual worth of a fiat currency. Three times it has happened here already. First, during the Revolutionary War, when due to printing and printing and printing, the currency became worthless. During the War Between the States, both sides printed with gleeful abandon. Both currencies became worthless; literally. All items that can be bought with a currency, “went up,” as the currency slid down that inevitable black hole. The beans, homes, and sofas didn’t change actual value. They remained the same beans, homes, and sofas. The currency used to purchase these items “went down” in purchasing power, due to the huge government’s expenses, which were paid in funny money. Three times already, and another well on the way, unless you think that a 98% decrease in value means nothing.
In my town, a delightful neighborhood known as English Gardens, has fine homes, that sold in the area of $14,000 when they were new, about 25 years ago. Today, they sell quickly in the area of $125,000. Why? They are the same home. Why should they cost more? Not because the neighborhood has improved, because it hasn’t. It’s that the huge government Goliath has caused the dollars to go down in purchasing power. This is known as “inflation,” and is caused by the supply of currency increasing or “inflating.” During Jimmy Carter’s time, it was in vogue to ’fight inflation.’ No one could explain how to do this, because other than by decreasing government size and profligacy, so the currency supply could cease to be inflated, no citizen could ’fight’ it.
Imagine a State Department with but 7 employees. That’s how many it had during the Presidency of Thomas Jefferson. In 1815, the federal government had but 515 employees. The dollar was not losing purchasing power, and was backed by gold and silver in the US Treasury. The coins were made of silver. Sofas would be the same price year after year, as would bread, and homes. It was wise to save. It is foolish now, unless you save in something other than dollar denominated instruments. Saving in decreasing value dollars, is similar to opening the window for fresh air, and turning on the furnace to keep warm. It is a study in absurdity.
The government has grown 500 times as fast as has the population. There are thirty times as many laws now, as there were in 1900. A salmon has its birthplace “imprinted” in its tiny brain when hatched, causing it return to its birthplace to spawn. Like the salmon, Americans are “imprinted” with the trust in government and dollars, and few ever change their devotion and allegiance.
I cannot understand why finance advisors and economics nabobs urge “cash positions.” Daily, on Bloomberg, ’experts’ tell the interviewer that the stock market is suspicious, or some other reason, and they are heavy in cash. I hate “cash.” Cash is a rowboat with a teensy hole in it. Cash is a sure loser, and especially when its 1% interest is taxable. But getting back to the root of all these troubles, and that is the inflating of the currency supply.
Why don’t politicians stop this wild orgy of spending? Because they will lose the next election, that’s why. During the last budget formation, my Congressman, whose name is Scott McInnis, got the local police department $500,000 for “improved communications,” or some such rubbish as this. I live in a town of 13,000. Crime here is so negligible, as to be laughable to a big city resident. Did the local gendarmes need that $500,000 worth of equipment? They were doing fine without it, but Scott McInnis may get re-elected, because he got the cops $500,000. The award will sway votes and make him a hero, even though it is utter foolishness. How many of the 435 Representatives did the same for their districts? How many other awards did Rep. Scott McInnis, Republican, get for others in his district, that we locals didn’t hear about? Undoubtedly, hundreds of billions of dollars went down the sinkhole of inflation, because of this type of nonsense, which goes on continually.
How to stop it? It can’t be stopped. Just hold on for the ride, and get out of dollars, because there’s no future in them. “But gold has gone down of late, and if I had gotten gold, I would have lost, wouldn’t I?” Maybe for a short time, but gold is for the long term, and it will be grand as the years pass. Suppose you had saved in Enron or Worldcom? Gold will go right back up, but these stocks will never go up. Most believe real estate is very soft now, and will go down in dollar prices, due to over-supply, job losses, and a sour economy. Will real estate go back up like gold will, and as quickly?
Doubtful, as the economy has yet to hit bottom. Since there is no way to stop the politicos from doing their “thing,” which is destroying the value of our currency, what are we to do with surplus assets? To me, a quick look at the world situation gives the answer. Is the war going well? No. Is it expensive? Yes. Is it being paid for by enormous inflating of the money supply? Yes. Will that make the dollar lose some, or a lot of its purchasing power? Yes. (In all previous wars, the dollar has lost purchasing power, without exception.) Do what you will, but next time you look at a dollar bill, ask yourself what it bought when you were a child, regardless of your age. You’d be surprised. Protect yourself!