A fellow called me this morning and asked me, “How long can this go on?” My answer? I don’t know, but it has gone on as long as it has, as opposed to the German and France collapses, because of huge amounts of credit. I mean credit, the likes of which couldn’t even be comprehended a few decades ago. Never in history, have so many bought so much with so little. Never in history, have so many been in debt to the extent that it may never be paid back, because of bankruptcy, and the chain of bankruptcies this causes down the line, to all industries. Now this is frightening to me, and I hope to you.
Maybe the answer is, that as long as the presses run, it can go on. The press runs of currencies don’t really prolong the thing forever, because wages never keep up with the prices increasing. They can’t, because wage increases, as far as unions anyway, can only happen at the close of a wage contract, which are often two or three years long. Press runs of currencies are not a solution, because when governments sell their debt to foreigners or domestic investors, and inflation is running at a huge rate, the bonds and treasury bills are also at certain interest rates for long periods of time. Runaway inflation towards the ultimate end, are figured on a daily basis. This discourages anyone from buying government debt, or any other debt either, because investing in debt for more than a brief period of time, is worthless, as the currency is debasing at a faster rate than the interest earned. It has to come crashing down eventually.
The U.S. economy collapsing, is a nightmare of proportions, which no one can comprehend. It has never happened. True, the dollar went to zero three times already, but that was nothing like the way it will happen again, I don’t think. The first time was during the American Revolution, when the printing press money went to zero because no one would accept it. Gold and silver were commonly accepted as real money during that time. During and after the War Between the States, both the North’s and South’s money went to zero, but there was still gold and silver freely circulating, and was undoubtedly used as payment for goods and services. When the market collapsed in 1929, the dollar didn’t. The buck was still backed by gold, and the coinage was still silver. Stocks collapsed, but not the money. Also, during the collapses of American money in the past, there were other currencies in the world, which were backed by precious metals. Today, none are so backed, and all are merely pieces of paper.
Inflation never stops, till the system collapses, because it feeds on itself. As prices go higher, ever more currency is needed and produced, because it is needed to simply continue operating the system. Inflation may be like a drug habit, although I don’t have one. It is said that when one starts a habit forming drug, it requires ever more of it, just to “stay even,” till death comes, or a long, difficult, painful process of rehabilitation happens. But this is for an individual, not a nation, or even a world. It is so hideous a thought, than one simply cannot comprehend it, but history always repeats itself, and the sheer logic of endless currency printing, and its inevitable results, cannot be denied. The logical increased rate of debasement, cannot be denied either, because the increased demand is happening.
As an example, President Bush recently signed a 1752 page “Highway Bill,” which contains 6,371 special projects, which can only be described as “bringing home the bacon,” by the Democrats and Republicans who inserted them. They run from highways from nowhere to nowhere, in Alaska, to a $120 million dollar bridge in Speaker Hastert’s district. The “Highway Bill,” will in the end, cost $300 billion or more. Last month, the House approved a bill authorized $4.4 billion for water projects, and Bush has cut taxes by $19 billion, including the “Energy Bill.” This doesn’t count huge shortages in Medicare, Social Security, Iraq, and Afghanistan. This means that just for the above mentioned things, a billion a day must be printed. The post office lost billions last year, the space program costs billions, and tens of millions have decided not to pay any more to the IRS understandably. The income tax, long ago failed to pay even the interest on the national debt, much less operate the government.
The entire economic system is a gigantic hoax, in other words. Worthless pieces of paper are buying valuable tangible things. Commerce today, is not exchanging one valuable thing for another valuable thing, as in bartering between two people. “I’ll trade you my antique dresser for your Model A Ford.” That’s an equal trade. The owner of the dresser would rather have the Model A, and the Model A owner would rather have the dresser. Both have tangible value. The Ford owner may have lost his storage space and need a dresser, or vice versa. Willing buyers and willing sellers agree on a trade. However, exchanging worthless pieces of paper, backed by nothing, for tangible, valuable merchandise, can only go on as long as the person taking the piece of paper has faith that he can get rid of it for something else of tangible value, before that paper loses the “value” that it had when he accepted it. With inevitable currency unacceptability increasing, due to its losing purchasing power ever more quickly, one must get rid of it, with all due speed, before is loses value while it is still in one’s hand.
In Germany, during the final collapse of 1924, a cup of coffee might cost 5,000 Reichsmarks, and a re-fill might cost 10,000. Finally, a wheelbarrow of money was required to buy a loaf of bread. In France, the situation was almost exactly the same. The prices of tangible things “go up” in failing currencies. They have the same value. Just the prices in failing currencies go up. So why, since this is happening now, do people save in these currencies? The answer is simple. Faith and habit. Americans have “faith” in their government, although why, escapes me. They have, all their lives, used dollars, and saved in dollars. “They buy stuff, don’t they? Well, I’ll save them, so I can buy stuff with them in the future.” This is utterly STUPID, but 95% of the world believes that way, and will till the cows come home, and their currencies are at zero.
Yesterday, we went to a house warming, and the householder, who is a wonderful fellow, said that when he was a kid, he bought a $500 policy that gives him a fancy funeral, limousine, burial, hearse, grave marker, ceremony, flowers, and the whole bit when he dies. He’s 75, and really believes he will get all of it. When pigs fly, or the sky falls. I doubt that the insurance company is even in business, first of all, but if it is, I doubt that he will get a $25,000 funeral for that piece of paper. “Promises, promises, they never come true,” sang Patty Paige. The U.S. government, long ago stopped printing bills that said they were redeemable in gold and silver, so that promise long ago disappeared. They are redeemable in more paper, that’s all. Oh yes, last week I asked what the car companies would do when the “employee price to one and all” expired? The answer is that they have extended it.
As kids, we usually went along with the Santa Claus myth, till about age five, more or less. The Easter Bunny and Tooth Fairy myths, about the same? There was evidence of all three, which a childlike mind could accept, and especially since they were told by loving and trustworthy parents. They were false, and the proofs were toys beneath the tree, eggs, candy, and that quarter under your pillow. What more could a five year old ask for? We finally realized that they were myths designed to make us happy. Why do the stupes believe in, and save in dollars? Because they trust their government, and after all they do buy things, so they must have value. The fallacy of such beliefs will leave millions out in the cold eventually. I, as usual will end this with “Protect yourself.” A client has suggested that I use “cya,” or cover your ass. “Protect yourself” seems to be a bit more genteel. And after all, I have often been labeled a snob!