Sometimes using mixed metaphors is the best way to draw attention. It makes people sit up and go, “Wait! That’s not right.” It is this same idea that applies when I heard that the Federal Reserve had the Treasury Department print up the few trillion dollars so they could buy the debt caused by the latest of the bailout/stimulus packages. I had earlier written here that this was the one thing that if done would signal serious and troubling times ahead. It appears that no country, not even the Chinese whom we have come to depend upon to finance our debt, are willing to risk their capital on the American future and the promised eventual recovery. So, we have turned to the age old and equally disastrous path of inventing money out of thin air to finance our pipe dreams of buying our way out of our current economic downturn.
Fortunately, this method has been used before; so, we have a track record to give us insight on how well this might work. Unfortunately, the two most recent and famous implementations of this method are the current financial meltdown in Zimbabwe, the economic woes in Japan in the last decade, and the short lived Weimar republic of Germany after WW-I. In both cases, the result of getting money for nothing was runaway inflation and a devalued currency. The predictable outcome of this eventuality was the focus of much discussion during the Nixon Presidency when President Nixon took the United States dollar off the gold standard. All the way back then, as my kids refer to my ramblings about “in the day,” many economic heavyweights predicted massive runaway inflation, sky high interest rates, rising unemployment, and a general downgrading of America’s credit rating. They were initially proved correct when Nixon had to resort to price controls to hold down inflation. The next sign that these predictions were dead on was during the Carter Presidency. We pulled out of that “malaise” by the Regan Administration lowering taxes, especially those on business and capitol gains. This bolstered the American economic engine and put off the eventuality of taking the United States off the gold standard and then printing money to cover government debt, or to rescue companies from massive debt from ill-advised business practices.
All I can say now is we are here at the edge of the inevitable great and possibly economic bottomless chasm from which there may well be no escape once we teeter beyond the cusp. The only safe path is to stop the runaway spending by our government using money freshly invented out of thin air and return to responsible economic governance. Such an outcome will necessitate some initial discomfort and possible heavy price before we turn our economy around. Should we continue with propping up failed institutions with fantasy money, then we will definitely reap the whirlwind of drastic economic payment that becomes inevitable every time this path has been chosen. I am not a believer that despite the consequences that have always been the result from these choices, but this time will be different because we say it will be different and we are special. Nope, we are not immune to the ramifications any more than Japan or Germany were, and Zimbabwe currently. Presuming we stay this course, my advice is to pay off as much debt as you are able and brace for some hard times. Hopefully, American resourcefulness will win out in the end, but there will be some rough roads to drive through in order to get to the other side. I have faith that with time, we will recover, but then I’m an optimist.
Beyond the Cusp