“Alcohol: the cause of – and solution to – all of life’s problems” is a statement attributed to America’s most influential philosopher and ethicist, Homer Simpson. And with the actions of our Federal Government in recent months, I think his statement also applies to fiat money – money that is created out of nothing by a government no longer required to have actual backing behind the paper. Got pain? Let’s create billions of dollars from thin air – or thin paper – to bail out debtors and bankers, and hand out a few fistfuls to the masses to fuel more binge spending binge. The drinks are on the house! Your house. And your income and savings.
Here we are in the midst of economic shocks caused by the sub-prime crisis and the associated popping of the housing bubble. Markets are nervous, stocks are down, and the banking industry is bleeding. This pain can be traced in large part to the loose monetary policy of our government, which for years used artificially low interest rates and massive creation of money from nothing through the miracle of the fractional reserve system of the Federal Bank. Cheap, easy credit was created under Greenspan’s reign, driving up demand for homes and allowing banks to give out home loans to people who barely had a pulse. With property values rising, the cheap loans allowed people to make loads of money by buying homes, which reduced the risk of defaults for the lenders. It was easy money – and strongly inflationary.
But once interest rates climbed again to more reasonable levels, and once the higher rates at from ARMs kicked into gear, many of the home owners who couldn’t possibly afford their mortgages in the first place now – surprise – couldn’t afford them after all. Defaults. Pain. Loss . I know a woman whose husband is an essentially unemployed drug addict, and she has extensive health problems and a low-paying job with a houseful of children – but she was able to get loans for a new van and a “Greenspan” home. Amazing.
Bubbles must come down. The longer they are artificially sustained, the harder they may fall. This one may yet offer much greater pain, even with the $140 billion recently injected into the economy and the current redistribution of wealth campaign to stimulate spending of the masses. The money creation is aimed at bailing out the banks and bailing out the debtors at the cost of those who have tried to live frugally and save instead of spending like crazy. Our problems are ultimately caused by this nation’s spendthrift ways, both at the level of government as well as at an individual level. And the solution to the pain is to drive this nation further into debt and encourage people to spend more, more, more. Alcohol and fiat money, the cause and cure of most of life’s problems.
Ether 9:11 should give us pause. When the ancient Jaredite nation was on the verge of disaster, as power-hungry maniacs gained a stranglehold on the government with their secret combinations, they resorted to giving out money as a way to gain power over the masses: “Now the people of Akish were desirous for gain, even as Akish was desirous for power; wherefore, the sons of Akish did offer them money, by which means they drew away the more part of the people after them.”
Our Founding Fathers must be rolling over in their graves. It used to be that proposals for massive deficit spending, redistribution of wealth, and government handouts of money to the masses would get one labeled as a socialist and a threat to the Republic. When McGovern proposed giving everyone $1000 in his 1972 Presidential campaign, America rejected the socialist offer and handed him a 49-state loss. Now this kind of binge drinking of debt and power is an unstoppable habit for Republicans and Democrats alike, with bipartisan efforts resulting in checks being sent out as we speak. It may feel great for a while, but the end result is disaster.
So how’s your food storage coming along?
We are facing more than inflationary “headwinds” now. We are riding in a swift current of inflation. Look at the price of gold, for example. It is now at $900 an ounce. Last year when I expressed my concerns about inflation on this blog, it was under $700. Silver has gone from around $13 an ounce last year (congrats to those who took my advice to get some!) to $17 now. Oil is approaching $100 a barrel. Wheat, milk, etc., are ascending rapidly. Congrats to those of who who have been investing in wheat, Mormon style. The value of your food storage is skyrocketing. Our dollar is tanking as inflation eats away at our money.
The most frightening words I’ve heard in a long time come in this amazing video clip from Ron Bernanke about 5 minutes into the clip. He explains that a weak dollar is not a problem because the only effect it has on Americans with dollars is to make the price of imported goods go up. That’s incredible. This is one of the most powerful men in the world, an unelected ultra-powerful official entrusted with the well being of our economy (contrary to the principles our nation was built upon). Does he not understand the basics of our economy and the impact of trade in the global economy? If the dollar drops by 50%, nearly ALL of our goods are going to become more expensive. This is true even goods that are entirely domestic in origin, because as long as the rest of the world can buy them at a discount, foreign demand for those goods will increase and drive up the price. But he wants us to believe that inflation is not a problem. Frightening. Utterly frightening. It would be scary if he were just ill informed, but surely he knows exactly why his statement is absurd. And that’s what really scares me. Well, this is a good time to prepare for a difficult future. Get out of debt, get all the education you can, save as much as you can, and don’t keep it all in dollars that will lose 10% of their value or more in the coming year. Provident living and preparing for the future is a key theme for Latter-day Saints, and it should be for all of us.