BY DANNY DE GRACIA II – “One of the evils of paper money is that it turns the whole country into stock jobbers. The precariousness of its value and the uncertainty of its fate continually operate, night and day, to produce this destructive effect. Having no real value in itself it depends for support upon accident, caprice, and party; and as it is the interest of some to depreciate and of others to raise its value, there is a continual invention going on that destroys the morals of the country.” –Thomas Paine
Rewind just 50 years into America’s past. If you wanted to be successful in life, you always did two things: First, you worked hard and second, you saved what you earned. Some of the highest paid professions included physicians, airline pilots and people who invented or manufactured things that our country could export abroad. America was the envy of the world and the first two steps to riches were work and savings.
Today, America finds itself in a position where hard work and savings results only in higher taxation and no personal enjoyment of fruits produced through decades of sacrifice. The average college student graduates with $22k in debt and a limited supply of jobs whose entry level requirements are often quixotic and attainable only through the “who you know, not what you know” rite of passage. The respected and affluent in America are scarcely the producers but are those who securitize or redistribute what others produce.
The FIRE Economy Has Set The Fires Of Inflation
Thanks to decades of intervention and manipulation at the Federal Reserve, an entire industry of finance, insurance and real estate emerged in which banks gave out loans not because they wanted to make money from interest but rather because they wanted to sell the rights to be repaid (and then sell insurance against the loan), houses were built as investment devices that no one could actually buy in cash, meaningless university degrees were offered that students couldn’t actually pay for (and banks were more than happy to sell the rights to be repaid to investors) and the government was more than happy to finance its operation by securitizing tax revenues of its citizens and then selling it to investors. And now, America and especially Hawaii finds itself in a position where everything government does is an “emergency measure” to plug budget gaps, raise revenues and add legitimacy to an illegitimate economy built entirely on things that don’t actually exist.
Predictably, America’s bipolar political system is incapable of resolving, let alone seeing the real root of the crisis we face. The default line from candidates of both parties is, “Today’s crisis is the result of poor leadership by the other party’s majority.” Oh really? Is that why no matter which party holds majority status, essentially the same thing happens: the dollar gets weaker, debts get larger and Americans get poorer?
The fact of the matter is that we have to recognize that the policies of our central bank are absolutely destroying America. Cheap cash – that is, low interest rates – distort the market and cause private individuals and governments alike to engage in only the most risky and unsound of financial practices. The problem we have is largely financial, not political. Look at what a hot money central bank produces: corporations which are insolvent and pay no dividends have bloated stock prices which, along with others, give the illusion of a thriving (or even recovering) economy. Governments which can’t even manage fixing potholes or catching sex offenders are given top marks by investment rating agencies and are encouraged to securitize their tax revenues and sell it to investors. And when both go belly up, corporations ask for bailouts from governments and governments ask for higher taxes from taxpayers.
We need to put a stop to this. I for one am tired of constantly hearing from actor politicians about Democrats and Republicans and their “lack of leadership” (or my favorite, “lack of values”) and we need to change the discussion to be about sound money. At the core of every bad government program – no matter what it is, both domestic and international alike – lies the issue of an attempt to artificially create credit.
Howard Buffett’s Warning Come True
In 1948, Howard Buffett, father of billionaire Warren Buffett warned, “The paper money disease has been a pleasant habit thus far and will not be dropped voluntarily any more than a dope user will without a struggle give up narcotics. But in each case the end of the road is not a desirable prospect. I can find no evidence to support a hope that our fiat paper money venture will fare better ultimately than such experiments in other lands. Because of our economic strength the paper money disease may take many years to run its course. But we can be approaching the critical stage. When that day arrives, our political rulers will probably find that foreign war and ruthless regimentation is the cunning alternative to domestic strife. That was the way out for the paper-money economy of Hitler and others.”
Everything the elder Buffett warned has come to pass. We find ourselves in multiple wars around the world, government daily coming up with new ideas of forced regimentation and austerity of our people (No cell phones while walking! No soda! No ice cream! No using leaf blowers!) and all the people in power can do is point fingers without seeing the root causes at work. Our future is no longer a promise but a security that has been sold. Is this what America and Hawaii are to be reduced to? A nation of unsound money means that our political parties are no longer there to represent ideas but rather to fight over who gets the rights to hand out the benefits.
My friends, what we need right now is a return to sound money, not soundbites from politicians. We need people who understand markets, not marketing platforms. It’s time to get fed up with the Federal Reserve and start beginning the real path to recovery and freedom here in Hawaii.