Blogs For Victory

(Ed. Note: I promised this to Spook and others for “after Church” on Sunday – I do apologize for not getting to it sooner but the Mrs needed me to sand down this used coffee table she wants to refinish and then there was a bit of swimming in the pool, beer drinking and carne asada eating to do…but, anyways, here it is, now: a thread to discuss the overall economic situation and how we get out of our current mess).

First off, a bit of gloom and doom noted over at Zero Hedge:

Just under a year ago, we got the tax fraud, and the only remaining member of Obama’s economic Titanic, praising the US recovery. His timing top ticked the economy, preceded the Hindenburg Omen by 10 days, and ushered in QE2. Now, we get his sidekick, long since departed after totally failing (we use the more polite F-form of the word) up at his job, writing the follow up, from the cushy confines of academia, warning America that unless there is a major fiscal stimulus (because presumably the monetary stimulus which everyone praised in the form of QE2 has now been proven to only be a boost to the stock market and a bailout of European banks), this once great country which once exhibited the world’s reserve currency is on its way to another “lost decade.” We wish Summers well: perhaps 3 of those who read the following drivel will take him seriously. Two of them are Krugman and Koo. We are taking bets as to who the third one will be…

So says those who believe in the current system. Don’t get too angry with them. After all, they were raised up in a Keynesian world. Their education was in accordance with it. Their life experience has indicated the necessity of it. They simply don’t know of an alternative – they don’t know, that is, that there can be a world in which money is of fixed value, inflation is non-existent, deflation is a good thing and investment is for the long term. They – and we – are living in an income taxed, usury-based, debt-financed economy. It was called in to being back in 1913 (when we created the Federal Reserve and enacted the income tax) and it has become just the way things are.

But must it always be so? Hasn’t it proven itself a success – isn’t the apparent lack of success over the past two years just an aberration and thus calls for even more of the same? More money printing and more borrowing? Not at all . In fact, the economic system we have has never worked – it failed from day one. No economy based upon money losing its value and where debt is just a part of life can work in the long run. To be sure, you might get some short term “growth” out of such things, but you get it by dooming yourself to eventual bankruptcy. That is where we are now – just a few years away from having more debt than we can ever hope to repay. In other words, just a few years away from default. And we might get a bout of hyper-inflation thrown in, just for fun, because money of no intrinsic value has, guess what?, no intrinsic value…it is worthless and only accepted as long as people figure they can exchange it swiftly for things which do have value. Come a time when people figure they can’t do it and our money will become wallpaper.

We had a bit of debate here at Blogs for Victory on the subject of whether or not tax cuts help the economy. Liberals, of course, say they don’t – they just allow filthy rich people to get even richer while spreading poverty because there are insufficient funds available to help the poor rise. Conservatives take the view that if you free up money for private enterprise, you’ll get a net gain in wealth and thus an increase in the wealth of even the poorest. Liberals are flat wrong, but conservatives only half right. To be sure, if we were to cut taxes right now it would help – but it would not fix the fundamental problem we have: fake money and lots of debt.

Fake money and debt allow for people to get rich by making rather stupid investment choices. For instance, a US hedge fund manager might pour his fake money in to industrial schemes in China – and he’ll get a good return on his fake money and get a big bonus. But he’s sawing off the branch he’s sitting on. Unless the US economy is growing in productivity – ie, in the making, mining and growing of things – then what underpins the hedge fund manager’s life is being eaten away. And that fat bonus check won’t amount to much if the United States crashes headlong in to Great Depression territory. The reason we haven’t hit the wall just yet is because while we’ve been using the fake money, we have been able to borrow enough to make it appear that we’re doing ok. This is not just government borrowing – it is the people borrowing as well. As long as we could keep borrowing money to buy the goods being made by the hedge fund manager’s investment in China, everything was great…but eventually you do have to actually pay back the debt and if that time arrives when you have drastically reduced your ability to produce wealth, you’re screwed. And we, dear fellow Americans, are pretty badly screwed, at the moment.

The most important things we can do for our economy, at the moment, is to revert to a hard currency and to reduce our debt. A hard currency has traditionally been a gold-backed currency, but it can be backed in other ways. The main thing is to have something of fixed value – something which ensures that a dollar in 2011 is worth the same as a dollar in 2061. This removes the need for 8-12% returns which require banks and investors to make risky, speculative financial bets rather than careful investments.

The second thing to do is eliminate any tax or regulation which inhibits people from entering the marketplace whenever they choose. There are, in any society, a certain number of people who just delight in making things happen – we’ve been ham stringing them for a couple generations, especially with environmental regulations and anti-business taxes. Remove those and the natural, creative energy within the American population will get to work – and we’ll start building up the wealth necessary to discharge the debts we’ve piled up, public and private.

The final thing to do is to make it impossible for government to pile up debt and very difficult for average Americans to do so. Debt is poison – it allows governments and people to kick the can down the road. It allows people to be idiots – and greedy idiots, at that – right now while putting off indefinitely the day of reckoning. Indefinitely, but not forever. The day, as I’ve said, has now arrived…and our debt will utterly crush us. So, let’s get rid of it. For government, it means a balanced budget amendment – for the people, it means establishing strict underwriting requirements in order to obtain debt. The requirements should be so high that it is next to impossible to get unsecured debt (credit cards) and difficult to get secured debt (home loans). Only the most sober and thrifty should be able to obtain credit – and that is how it used to be (though, of course, loan sharks have always been available for the profligate…we call them “payday loans” now).

The over-arching consideration must be that only via hard work, saving and careful investment can we economically advance. There is no short cut; there is no easy way to riches (at least, for most of us – you can luck out with the rich uncle or the winning lottery ticket, but 99.9% of us simply won’t have that – and our policy should be based upon the reality for the 99.9%). Unless and until we set in place policies which reflect these truths, we’ll not only not get anywhere, but we’ll ensure a worse collapse when it comes. It is time for us to grow up and start acting like Americans, again – start, that is, to act like people who are realistic about themselves and the world.

Now, what do you think?