A hundred different snapshots could show you the mess we’re in. Soaring personal and government debt. A plunging savings rate. Record-high mortgages as a percentage of GDP. Plunging yields on 10-year Treasuries. Soaring but “hidden” unfunded government liabilities, to the tune of $53 trillion…
But none show it better — and more plainly — than these two I’m showing you right here, above. The first is our skyrocketing money supply. The second is our plummeting purchasing power. That’s about as plain as you need to get.
How so?
Because this is the starkest vision you’ll ever get of the absolute carnage that’s piling up in a “secret war” Washington’s fighting right now… and has fought, unsuccessfully, for the last 20 plus years. No, not the war in Iraq. Or Afghanistan. Or even some possible future conflict with Iran.
This is another kind of war… right here at home.
The enemy is the dark nemesis of a dead and stagnant economy. And the Fed secretly fights to hold it off desperately every single day. This is a worse enemy than recession. It’s the enemy called deflation, an economy where nothing moves and nobody buys a thing.
The weapon of choice in this ongoing secret war is to flood the market with cash and easy credit. Because regular cash and credit injections make everyone feel rich. The theory goes, when you’ve got cash and low-priced credit, companies borrow and expand. Consumers borrow and spend. Families borrow and buy homes.
Which is why, since 1950, the total amount of money in circulation has soared well over 3,000%! And it’s all good… or seems good… until it goes all wrong.
See, the trouble is, even money can’t escape the natural law of supply and demand. When there’s too much of it floating around, each dollar is worth that much less relative to the whole. Suddenly, you’ve got price inflation.
Suddenly, every dollar you have in the bank is worth less.
Hemingway called it the “first panacea of a mismanaged nation.”
And in our case, it’s helped plummet the purchasing power of our dollars by a mind-blowing 96%. The dollar’s worth today is just pennies compared with what it bought a century ago. In fact, its worth is just a fraction now — as we just demonstrated — compared to the last time gold prices boomed, in the 1970s and early 1980s.
Only now, unlike then, the “wiggle room” we have left now between us and a complete dollar implosion is so thin it’s practically transparent. Could total implosion actually happen? Absolutely.
Take what relatively new Fed Chairman professor Ben Bernanke famously said in a speech at the National Economists Club in Washington, in November 2002…
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost… We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
In other words, if you want to juice an economy… turn on the printing presses and make it as easy as all get-out to borrow money at a low, low rate of interest. Bernake and others in the Fed think that’s no problem. They think they can handle it, just so long as short-term interest rates don’t go to zero.
But a brilliant and famous colleague of mine — someone I’ll introduce you to in just a second — completely disagrees. Flooding the market with easy money, he recently told me in private, is more like burning your furniture to keep warm. It cannot last as a stopgap measure. It’s courting disaster.
He and I both like to think an even smarter economist, Ludwig von Mises, got it right instead, when he said…
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
See, thanks to all that Fed-driven loose credit, consumer debt has soared. It’s never been higher. In 1987, when Alan Greenspan first took his job in Washington, consumers where in the hole by about $10 trillion. Where are they now? An unbelievable $37.3 trillion in the red – or nearly 350% of GDP!
Think about that.
As a whole, Americans owe three and a half times more than the entire U.S. economy — the largest in history — produces in a year. If you or I owed that much on a personal level, we’d be suicidal.
Meanwhile, the government doesn’t seem to worry. They spend money even faster. They borrow even deeper. Even this administration now, with full knowledge of the implications of a credit disaster, has already borrowed more money since 2000 than every White House since the time of Washington!
By 2017 – says the Heritage Foundation – our federal deficits should be soaring by at least $1 trillion per year. After that, it will jump to $2 trillion. That’s not how much we’ll owe. It’s how much we’ll add to what we owe… every 12 months, for as far as the eye can see.
Doesn’t that sound, to you, like we’re at a turning point?
