Since the last year of George W. Bush's Presidential Term, The Federal Reserve has been printing Trillions of New American Dollars.... The first two trillion printed, paid for: Uncontrolled Budgetary Deficits, Bush's Two Rounds Of Federal Tax Rebates, and The First Five Failing Banks. The next five trillion printed, paid for: Even Larger Budgetary Deficits, Twenty-Two More Failing Banks, and Obama's New Governmental Stimulus Package. Meanwhile, two trillion more has been printed merely to keep on hand as needed - by our, "Out Of Control," Federal Government.
Considering, our original National Currency Supply of 11 Trillion, going into this economic downturn - 9 Trillion Additional Dollars represents almost a complete doubling of our National Currency Supply... and were The United States any other nation, hyperinflation would now be factually occurring! And yet, with the exception of certain commodities, we are doing remarkably well in keeping our currency values in line.... Why, you may ask, is America so different?
Since the end of World War II, every world currency has been pegged to The United States Dollar as The World Reserve Currency - of choice! This is largely due to the financial shambles of an entire planet, after the most: humanly horrific, economically destructive, and financially impoverishing war in our entire world history. As the only nation left physically intact, and largely untouched by the war, America had the financial and economic capacity to underwrite the world's currencies as a reliable medium of financial exchange. There simply wasn't enough gold or precious metals, in anyone-else's hands, to do it otherwise... and our currency was solidly backed by real currency.
The Bretton-Woods Agreement was a way for other world nations to achieve the stability offered by Gold - without actually owning any themselves! After all, America had acquired most of it during the course of the war by manufacturing weapons and armaments for almost every Allied Nation on Earth... and it would be decades before the industrial might of Europe and Asia would recover to their previous economic capabilities. Meanwhile, America stood to gain tremendously through massive exports of everything from raw materials to finished products galore - while these continents slowly rebuilt.
After Bretton-Woods, America was [by far] the richest nation on Earth.... As the world's number one exporting nation, it generated tremendous amounts of new financial wealth! So much so, that America was forced to raise taxes to alarmingly unheard of levels - after the war - in its effort to stifle a too rapid economic growth. Thus, The Federal Government found itself simply awash in new taxable revenues - which our population clamored to spend, on everything under the sun. Thus, was born: "The Great Society," as mentioned by all of Our Post World War Presidents!
At the time, our ever-expanding coffers seemed quite endless and our politicians - filled with joy - funded virtually anyone or anything that seemed even somewhat socially useful! In fact, we even gave hundreds of billions of dollars away to other nations - in numerous efforts at obtaining good will. We created all sorts of new social programs to render assistance to virtually every political constituency. We paved virtually every street and/or road in America - regardless of how few actually lived there. We built massive bridges to nowhere - without any complaint! What we didn't do, however, was: build up a necessary surplus for emergencies, maintain and upgrade our necessary public infrastructure, or invest heavily in the future of America... and later, this would come back to haunt us terribly!
Meanwhile, two decades of profligate spending habits - being an entire generation in political terms - accustomed many Americans to the [seemingly] appealing benefits of "Big Government!" Even as Europe and Asia were now recovered - and thus highly competitive - the average American still wanted those wonderful handouts to continue, ad infinitum. Few cared, where our government might get this new source of money, they merely wanted it to be spent... and our politicians were [more than] glad to continue along in this very dangerous path - even if ultimately unsustainable!
Faced with increasing budgetary deficits, The Federal Reserve merely printed more money as needed to cover these ever-accumulating costs - whenever lenders couldn't be found. Thus, while growing ever deeper in debt overseas, our currency was being slowly debased at home. The first result was switching from Gold to Silver as our preferred medium of foreign coinage exchange. The second was ditching Silver in 1972 - for a floating or un-backed currency, at large. However, America was still an industrial and economic power - so such changes went largely unnoticed!
Consequently, our failure to invest in our future - during those financial boom years - resulted in our rapid and steady economic decline.... After all, those competitive factories in Europe and Asia were all brand spanking new and equipped with current modern technologies, and many of our factories were: more than a century old, utilized Pre-World War II technology, and reliant upon a [now] very large and failing infrastructural system. The combination of these coexistent factors was daunting, and our expensive tax structures were [now] stifling in a worldwide competitive market. Still, America could have recovered - without the addition of one more political nail!
Then, along comes Free Trade.... Free Trade is one of those things which [in theory] benefits everyone, but [in reality] benefits those who are already competitive the most! Had the American people not suffered from unwarranted delusions of grandeur - due to their debt driven success - most of them wouldn't have even entertained the thought. But America seemed still quite successful and prosperous, despite all of her underlying: Infrastructural, Economic, and Financial failings... and, [at the time] it seemed that, Free Trade would only propel her back to the top! Surely, America would benefit from this generous new policy....
Consequently, The American Corporations were faced with a monumentally daunting task! They had to: Rebuild, Re-Tool, Re-Train, and Re-Capitalize under the worst possible competitive world market conditions... they had to do so without: Governmental Protections, Reductions In Taxes, or Much-Needed Infrastructural Assets... and they had very little time left to do it. Of those that survived, their solutions were most often: short term, impractical, financially dangerous, and/or socially disruptive in general. Meanwhile, the average blue collar American worker suffered the most!
Millions of people were replaced with Technology. Millions more watched quietly as their factories went overseas - in search of cheaper labor and reduced governmental restrictions. Millions more lost: Annual Pay Raises, Bonuses, Benefits, and Employee Retirements. Millions saw their jobs being outsourced to other nations. And Millions saw their companies collapse from financial ploys and irresponsible accounting schemes gone wrong! Meanwhile, Wal-Mart quietly became the world's largest retailer. Was this, mere happenstance, Cause and Effect? You tell me....
As Federal Revenues plummeted, Our Government embraced the tools of Keynesian Economics and utilized The "Easy Credit" Policies of The Federal Reserve to keep us economically floating above water! Interest Rates went lower and lower - in an effort at constantly addressing, these fundamentally underlying issues. Even a Prime Rate of zero, wasn't beneath these efforts... and yet, that too failed to revive our struggling economic system. Thus, Congress mandated new laws governing lending on new houses - basically forcing them to take on bad loans - while guaranteeing them with Fannie Mae and Freddie Mac's assets. As we all know [now], this was the start of: "The Housing Bubble...."
This last desperate act, led to a small boom across our nation - as many poorer Americans purchased new homes and other investors bought new rental properties. However, it also increased [or artificially inflated] Real Estate prices precipitously! To the point where few could any longer [honestly] afford them - even with a decent job and impeccable credit. Thus, a correction was necessarily due. Of course, hardly anyone suspected it would be our financial undoing - with the exception of Peter Schiff, Ron Paul, and a select few others. Surprise!
Since that time, The Fed has been [honestly] working overtime in the press rooms... and other nations - who now refuse to lend at all - are taking significant note of these ongoing activities in large measure! In fact, they are openly discussing ways to unhitch from The United States Dollar as The World Reserve Currency. You see, our trading partners in: Europe, Asia, and The Middle East are tired of footing the bill for Our Profligate: Borrowing, Printing, and Spending of [what is essentially] their money. Nor, can we [honestly] blame them - for thinking in those financial terms of enlightened self-interest. It is costing them Trillions of their own currencies to continue propping up Our Dollar!
Every Dollar we now print, is costing someone-else [somewhere] 35 cents to prop up... and many of them are simply not our friends and/or allies! In fact, many of them, thoroughly hate us - for forcing them to basically pay, what amounts to, international taxation to do business with them. It wasn't that long ago, that America fought a war over: "Taxation Without Representation" - and The English Pound as a medium of forced exchange was a large part of that issue!
Since unhitching from The United States Dollar can be [quite effectively] done without a war on their part, it will most certainly happen in the near future! The details of precisely how it occurs will be anyone's guess... but an old American saying says, "Necessity breeds strange bedfellows." Meanwhile, China is buying up every ounce of Gold it can, promoting Gold Ownership to its citizens, and negotiating with: The Middle East, The European Union, and Russia - to [likely] take upon itself this New Reserve Currency Role! If and when that happens, the rules governing The Dollar will change substantially overnight.
An Un-Hitched Dollar, will be immediately subject to "True Market Values..." and will tumble quite rapidly, since we've already inflated it very substantially! Moreover, without access to world financial markets, America will be forced to print every deficit induced Dollar immediately - as needed. As the economy spirals invariably downward, more and more money will be needed to make up the difference for many already dependent Americans - while even more shall fall below a self-sustainable level... thus, the cycle feeds off of itself!
This cycle is called: "Hyper-Inflation." The end result of Hyper-Inflation is quite accurately and historically predictable. It always ends in: Worthless Currency, Economic Collapse, Human Suffering, and Societal Misery! However, there is an upside to such horrific occurrences... usually a generation or two will learn from and remember this gross societal mistake... and those who are prepared for it, will honestly get rich - they always do. Moreover, the impending Currency Bubble will awaken Americans to the failing of "Big [And/Or Abusive] Governments!"
For all of these reasons, I will make a valuable political prediction: "The Tea Party Movement will grow geometrically over the next couple of years!" Nor, is this a matter of, "Doom and/or Gloom," but when people are hurting - and they will be hurting - they usually, "Throw the bums out who caused it." As The Democrats and The Republicans are both substantially guilty of these very serious political crimes, The American Electorate will have no other choice than to replace them both with someone else - more representative of Our Traditional American Principles, of: Real Capitalism, Individual Freedom, and Personal Thrift!
This may take the form of finally endorsing The Constitution and The Libertarian Parties, or it may mean creating new parties altogether.... In either case, The Tea Party Movement will be its initial political structure, guiding social movement, and ultimate kingmaker! Just wait and see.... History often repeats itself, and America is no exception to its more practical rules. Although we may believe that we are somehow different, we aren't really at all. Sure, we can: Build Rockets, Launch Satellites Into Space, and [even] Create The Very Best Video Games - but: Economic Theory isn't Rocket Science, Infrastructure Is Built upon The Earth, and It Costs Real Money For Games!
In the meantime: Hope For The Best, Pray For God's Mercy, and Prepare For The Worst.... For, a bad storm is quietly brewing on the horizon! Rest assured, we can and will get through it, but troubling times are definitely ahead. In the end, America will still be here - even if its borders are somewhat different, and its States are once again firmly seated in The Senate!