Tune into CNBC or click onto any of the dozens of mainstream financial
news sites, and you'll find an endless array of opinions on the latest
wiggle in equity, bond, and commodities markets. As often as not, you'll
find those opinions nestled side by side with authoritative analysis on
the outlook for the economy, complete with the author’s carefully
studied judgment on the best way forward.
Lost in all the noise, however, is any recognition that the U.S. monetary system – and by extension, that of much of the developed world – may very well be on the verge of collapse. Falling back on metaphor, while the world's many financial experts and economists sit around arguing about the direction of the ship of state, most are missing the point that the ship has already hit an iceberg and is taking on water fast.
Yet if you were to raise your hand to ask 99% of the financial intelligentsia whether we might be on the verge of a failure of the dollar-based world monetary system, the response would be thinly veiled derision. Because, as we all know, such a thing is unimaginable!
Think again...
Lost in all the noise, however, is any recognition that the U.S. monetary system – and by extension, that of much of the developed world – may very well be on the verge of collapse. Falling back on metaphor, while the world's many financial experts and economists sit around arguing about the direction of the ship of state, most are missing the point that the ship has already hit an iceberg and is taking on water fast.
Yet if you were to raise your hand to ask 99% of the financial intelligentsia whether we might be on the verge of a failure of the dollar-based world monetary system, the response would be thinly veiled derision. Because, as we all know, such a thing is unimaginable!
Think again...
Monetary Madness
Honestly describing the
current monetary system of the United States in just a few words, you
could do far worse than stating that it is “money from nothing, cash ex
nihilo.”
That’s because for the last 40 years – since Nixon
canceled the dollar’s gold convertibility in 1971 – the global monetary
system has been based on nothing more tangible than politicians'
promises not to print too much.
Unconstrained, the politicians
used the gift of being able to create money out of nothing to launch a
parade of politically popular programs, each employing fresh brigades of
bureaucrats, with no regard to affordability.
Such programs
invariably surged during political campaigns and on downward slopes in
the business cycle when politicians hearing the cries of the
constituency to “do something” tossed any concern about balancing
budgets out the window of expediency. After all, the power to print up
the funds for debt service whenever needed makes moot any concern over
deficit spending.
Former VP Cheney, who fashions himself a fiscal
conservative, let the mask drop when, in 2002, he stated that “Reagan
proved deficits don’t matter.”
Those words were echoed just a few
weeks ago, when both former Fed Chairman Alan Greenspan and Obama
economic advisor Larry Summers, in separate interviews, said almost the
same, paraphrased as, “There is no chance of the US defaulting on its
bonds, not when our government can borrow dollars and print new dollars
to meet any future obligations.”
Of course, Greenspan and Summers
were referring to an overt default – of just not paying – and not to a
covert default engineered by inflation. Unfortunately, like virtually
all of the power elite, both miss the point that the mountain of debt
that has been heaped up since 1971 is fast reaching the point of
collapsing like a too-big tailings pile and taking the monetary system
down with it.
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