suep

U.S. Monetary Policy: Has Anything Changed?

This article is a fine one. It points out the folly of looking at the near-term attempt to resolve an immediate issue and projecting it to resolve a far more threatening one.

The problem as I see it has not changed, regardless of a variety of economic conditions in the last 75 years, to be exact. The problem has continued unabated, regardless of short term fixing attempts, since President Roosevelt eliminated the gold standard. Before you double over in laughter, consider that from date of the nation's inception in 1776 until 1933, the date that President Roosevelt delinked the dollar from gold, there was no inflation. (If you don't believe these words, I urge you to pull up from Google any inflation adjuster and test my hypothesis. You will find what I say to be a fact.) Until 1933, a politician was constrained by the people from inflating the currency. For if the word got out that too much money was being created by politicians, citizens could simply walk to the Treasury and demand their gold for their dollars. And it worked. In 1776, an ounce of gold bought a man's good suit of clothes. Today, it still does. Here is the way it worked when the country was on the gold standard. If the President wanted to give, say, to Peter, he first needed to take it away from Paul. So no politician could easily buy his way into power by giving to both. That was before the fateful year of 1933. Since then, politicians had no such restraints. they pepper everyone with gifts in the form of the Ponzi Scheme of Social Security, Medicaid, Medicare, etc., knowing that there would be no near-term repercussions. Little did they know what monstrous inflation will envelop us and culminate in a financial Armageddon. And it is almost upon us now. (Note that FDR bought gold for dollars at $20.43 an ounce. When he was satisfied that he had essentially all of American's citizens' gold, he unilaterally raised the price to $35 an ounce. Some nice guy!) As a matter of fact, FDR was the very first earmarker. Shortly after decoupling the dollar from gold, he went on a long train ride with Henry Ickes, the Treasury Secretary, father of the current Henry Ickes, Clinton confidante. What was the purpose of the trip? Answer: to win votes. Until that time, no Federal tax money was used for infrastructure such as building of bridges, roads, etc. FDR changed all that. Until then, it had all been done by local and state authorities. He went with his now-unconstrained checkbook to localities, dispensing taxpayer money for bridge building, et. al in return for promises of votes. It worked. Historians and common people alike know that he successfully ran and won the Presidency four times. FDR saw to it that he could pay BOTH Peter and Paul once he could indiscriminately create money without the restraint of gold. And this country's flirtation with an unbacked currency began. Sadly, no nation on the face of the earth has decoupled its money from the restraints of gold and survived. The United States will be no exception.

And we pay the price today, in spades. Recall that the price of gold in 1933, which of course remains a proxy for general prices of the time, was $20 an ounce. Today, the price is $933 for that same ounce. I'm good at math, being a multi-degreed engineer. That is a price increase of over 40 times. (I believe that the layman can do the same calculation...)

In 1900, the entire Federal budget was $550,000,000. In words, that is over one-half billion dollars. Compare that to President Bush's projected 2009 budget figure: $3,107,000,000,000, or in words, three trillion, three hundred seven billion dollars. Dividing these amounts, 2009's budget is nearly 5,700 times larger than it was in 1900. Scrubbing this ratio by inflation over that same time period, the current Federal budget is 140 times larger than it was in 1900. And we wonder if the nose of the Federal government is under our own tent? Don't wonder. It is.

What about the National Debt? You may say, "Who cares about the National debt?" I say, "You should care," because you are paying interest on it with your Federal income tax payment each April 15th. Not one person in one hundred is aware of what I am about to write...

Early in President Reagan's first Administration, the National Debt crossed $1 trillion. A scant 25 years later, it crossed $9 trillion. It is now increasing at the rate of $1 trillion every 15 months! Since the slope of the gain curve is positive, that means that the National Debt is accelerating over time. In the next 25 years, the nation's National Debt promises to be even larger than $81 trillion. Attendant increases in the annual carrying cost measured by interest on this debt are reflected in rising Federal income taxes borne by every taxpayer.

The only way for the nation's citizens to be able to service the interest in the National Debt, along with rising payouts for Social Security, Medicare, Medicaid, etc., is for inflation to be the norm.

And inflation is baked into the cake, as they say. It has been there already for a long, long time. And it will remain. That is, if Fedhead Bernanke has anything to say about it.

What to do? Simple: buy gold at pace, and have a foreign bank account that you fund as best as you can.

Thank you for your time.