A Turning of the Tides: Financial and Political Turmoil Foreshadow the End of the American Empire

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November 12, 2007

Last week brought two epic and polar (yet related) moments that will go down in history:

"Mark it down: A landmark moment entered the annals of political fundraising: Nov. 5, 2007.

"Texas Republican Ron Paul, the libertarian presidential candidate who has lagged in the polls but raised as much money as top-tier candidates, passed $4.3 million in online fundraising in 24 hours."

   -- Z. Bryon Wolf, ABCNews.com, 11-6-2007

"Mark your calendar! 11/07/07 - Today is D-Day, the date the history books will record the start-date of the new Depression."

   -- Michael Fox, History Book's New D-Day: 11/07/07   

The first of these events happened when Dr. Ron Paul, who ran for president in 1988 on the Libertarian Party ticket and is now running for the Republican nomination, raised a record-setting amount of cash – $4.3 million – in a single day on the fifth of November. Better still, this money was raised entirely by self-selected, self-organizing volunteers who conceived and ran the project themselves, so the Paul campaign did not have to spend months of staff time and trainloads of money on (for example) a direct-mail campaign to ask for the donations – or, heaven forbid, take out a multi-million dollar loan as McCain is doing.

$4.3 million is a lot of cash (it was cash, as opposed to pledges), and the publicity generated by this feat was worth many times that amount. Nearly every major old-media outlet – from the NY Times (on the front page of its Politics section) to the San Diego Union, from CNN to ABC to FOX News, from the libertarian-leaning Orange County Register to the not-so-libertarian San Francisco Chronicle – ran stories about Paul or interviews with him – in many cases, several stories or interviews. On Sunday, Paul was on Face the Nation.

This coverage is adding to the Paul campaign's exponential growth, which continues to be marked by unofficial, decentralized, spontaneous volunteer efforts. A recent example: MSNBC's Mark Murray reported that "Outside the University of Texas football stadium here -- just an hour before kickoff -- is a plane flying with a banner that reads: 'Ron Paul for President . . . Everyone wins.' We're not kidding."

The other candidates can only dream of such enthusiastic support, because the other candidates are all pro-centralized-power and, for the most part, pro-war, pro-torture, pro-corporatism, pro-coercive-socialism, pro-income-tax, pro-Federal Reserve, and in general anti-freedom. Other than the power elite and their captive wannabes, who would be enthusiastic about that? Even the publik-skool-edukated masses seem unexcited about the prospect of more such tyranny.

The Paul candidacy is acting as a backlight against which the dark forces of coercion and corruption are becoming visible, even to the brainwashed American public. Well, to a rapidly growing minority of the public, anyway.

For decades, the freedom movement in America has been a mere speck on the landscape; a mumbled whisper lost in the national discourse. Now a tipping point of sorts has apparently been reached. I do not know where it will lead or how far it will go, but the American public is suddenly interested in, educating themselves about, and actively seeking freedom in a way that looks more like 1776 than 2007. Time Magazine's November 2 2007 story The Ron Paul Revolution had this to say on the topic:

"It sometimes seems as if someone is playing a cruel practical joke on Ron Paul. He goes to a college and delivers the same speech he's given for the past 30 years of his political career, the one espousing the Austrian school of economics. Only now the audience is packed with hundreds of kids in RON PAUL REVOLUTION T shirts who go nuts--giving standing ovations when he drones on about getting rid of the Federal Reserve and returning to the gold standard. After a speech at Iowa State last month, when nearly half the crowd had to stand because there were only 400 seats, a hipster-looking student worked his way through the half-hour-long line to shake Paul's hand. This was surely it--the moment when the straight faces would break and Paul would be wedgied up the flagpole. 'When you see Bernanke,' the kid said, 'will you tell him to stop cutting rates when gold hits 1,000?'"

For a video with some of what Paul did say to Bernanke at a recent hearing, click here (5 min 54 sec).

Like the Founding Fathers, Ron Paul is a Constitutionalist and minarchist – a small-government libertarian. How can a voluntaryist and an abolitionist regarding forcible government – someone who wants a world entirely free of coercive government and its attendant evils – cheer and support the Ron Paul presidential campaign? Easily – just as I would have supported a viable small-government libertarian politician in 1930s Germany. Preventing or stopping the death camps, torture, secret police, aggressive wars, and other evil would easily have trumped my desire for ideological purity; you don't exactly have a non-coercive society when the Nazis are in power and are hauling Jews, Gypsies, dissenters, and anyone else out-of-favor off to Dachau. Stop the Nazis first; continue the movement toward freedom after that. You can't get somewhere unless you at least start moving in the right direction.

Of course, this is America. We don't have concentration camps, do we? (Actually, we do . . . waiting). And our government wouldn't dream of declaring martial law (see also here) or otherwise stripping us of our rights, would they? But still – I'd sleep better if the federal government began moving, even slightly, towards more sanity and freedom instead of towards more tyranny. Paul's presidential campaign and (more importantly) the public response to it represent the only real hope I have seen – ever – of reversing the long trend towards total corruption and tyranny in the United States.

What I want in this world is love and freedom, for myself and for every person. A tyranny can only be the opposite of love and freedom: a cruel and often murderous denial of everything real and decent in life. Freedom is life-affirming; coercion is not.

It is fitting that Dr. Paul is an OB/GYN who has delivered thousands of newborns.

- 2 -

If the successful Fifth of November fundraiser for Ron Paul was the first epic event of last week, the second was far less pleasant. As it happens, the events are tied together, because the fundamentals underlying this second event have been a big factor in the Paul campaign's dramatic rise. This second event actually consisted of several stunning pieces of bad economic news coming on the same day.

That they were "stunning" does not mean they were unexpected, at least to those who have been watching carefully. Severe economic distortions do not correct without painful movement into recession or worse, and here in the United States we have created the mother of all economic distortions. We are now clearly and unavoidably on the brink of a seismic correction that will crush the economic dreams of a generation. It is hard to cheer the start of what will surely be a long and, for millions of people, desperate time of economic readjustment.

The genesis of this disaster lies far in the past: the creation of the Federal Reserve and the income tax in 1913, for two examples; the replacement of the Articles of Confederation with the Constitution in 1788, for an even more distant inflection point. But as they say: that was then, this is now. There are several reasons for nominating this just-past 11-7-2007 as the Official Start of the coming Greater Depression, including especially the Chinese announcement that China might soon start shifting their investments out of dollars, and General Motors announcing a $39 billion write-down for the third quarter. China has been keeping America's finances afloat by acting as one of our primary bankers, loaning us – the world's biggest debtor nation – hundreds of billions of dollars. Without the huge influx of foreign funds in recent years, low credit rates, or almost any credit at all (including for the endless War on Terror) would have been impossible – unless the credit was supplied entirely by inflationary monetary creation, which it increasingly will be, apparently. As for GM's $39 billion problem: "To put the size of the charge in context, the total value of all GM shares outstanding was only $20.4 billion at the close of trading Tuesday", said Chris Isidore at CNN/Money.com.

By themselves, those two events would be significant jolts to our economy, but their significance lies even more in how symptomatic they are. GM is certainly not the only American corporation in trouble, for example. And everyone, not just China, is becoming averse to dollars – because the dollar has become a notoriously poor store of value, as the chart below makes clear:

From Dow Drops 360; Things Become More Serious by Michael Nystrom

Nor is this erosion of dollar value anything new:

Going back even further, the dollar was (for most of our history, and by law) worth about one-twentieth of an ounce of gold, until FDR called in U.S. gold coins and ended dollar convertibility into gold for U.S. citizens in 1933.

So: twenty dollars for a one-ounce gold coin has now become – well, $832.10 for an ounce of gold as I write this; check Kitco or 321gold for the current numbers; expect occasional downlegs despite the strong uptrend. Thank heavens the Fed has been working to "stabilize the value of the dollar" all these years! Imagine how bad things would be if the Fed hadn't been on the job!

Today's $90,000 is yesterday's $100,000 after inflation of 10%. My guess (and I'm not alone) is that anyone expecting real inflation levels of only 10% annually for the next few years is going to be disappointed. After decades of watching the dollar drop (see chart above), the rest of the world has decided that enough is enough. The dollar has become monta non grata.

There are plenty of other reasons for concern about the U.S. economy; oil has been hovering near $100/barrel (dropping recently, just slightly, to $96.32) and gold powered through the $800 mark last Monday and has stayed well above that number since:

11-7-2007 saw other indicators of our economic situation. A few examples:

- - - - -

Nov. 7 (LA Times) Silver hits its highest mark since 1981

Nov. 7 (Bloomberg) -- Chinese and Indian crude oil imports will almost quadruple by 2030, creating a supply "crunch'' as soon as 2015, the International Energy Agency said.

Nov. 7 (Bloomberg) -- U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc.

- - - - -

There is more – far more than I can cover here, both on the specific date of November 7 and on other days in recent weeks. Mike Whitney summed it up in The Fed Has Wrecked the Stock Market:

"America is finished, washed up, kaput. Foreign investors and central banks around the world have lost confidence in US markets and are headed for the exits. The dollar is sinking, the country is insolvent, and its leaders are barking mad. Investors are voting with their feet. They've had enough. Capital is flowing to China and the Far East in a torrent. It's 'sayonara' downtown Manhattan and 'Hello' Tiananmen Square.

" . . The news is all bad. The nation's economic foundation is in shambles. US credibility is shot. Bush and Greenspan have put us on the road to ruin. Now their work is done. We're flat broke."

Those with GM stock in their pensions or portfolios, or with most other stocks including banking stocks, or with mortgage-backed securities of any kind or T-bills or other dollar-dependent assets, meaning pretty much everyone you know who actually has a pension or other investments – are not going to like what is coming. Even those who don't have any assets to depreciate – especially those without assets – will suffer as the cost of living heads ever-higher at an increasingly rapid pace. The dollar is plummeting in value, the housing market continues its downward slide, food is becoming more expensive, oil is skyrocketing in price (even when priced in other currencies, although more slowly) and thus gasoline and plastic and fertilizer and everything else dependent upon oil (i.e., anything that requires energy to produce or transport) becomes more expensive.

There are many reasons for this accelerating rise in prices (peak oil, for one), but the dollar's fall in value is at once the biggest factor and the heart of the problem. No wonder Ron Paul is finally getting traction for his comments about the Fed destroying our currency: he is absolutely correct. He has always been correct, but now the consequences of Fed policies are becoming dire. People are noticing, and as they wake up to the situation they are becoming angry and afraid, with good reason. They also want an end to our aggressive wars and occupations in the Middle East – and as it happens, both Dr. Paul and our fall from economic grace promise to grant that wish.

Conclusion

In The American Empire is Falling with the Dollar (November 8), Paul Craig Roberts – Assistant Secretary of the Treasury in the Reagan Administration – surveys America's current problems and tells us:

"When the dollar ceases to be the reserve currency, foreigners will cease to finance the US trade and budget deficits, and the American Empire along with its wars will disappear overnight. Perhaps Bush will be able to get a World Bank loan, or maybe one from the 'Chavez bank,' to bring the troops home from Iraq and Afghanistan."

That sounds impossible, doesn't it? America's might couldn't possibly disappear so quickly – or so most people think. Yet Roberts' scenario is less far-fetched than it sounds. When foreigners begin refusing to take a nation's currency in trade, the drop in that nation's power and prosperity can be very rapid. Rome provides a sobering example:

"I want to stress just how fast this all happened. By the time Serverus was crowned in 193 AD, the denarius was still the international currency, even though for the last few generations it had gradually been devalued. But a mere 22 years later, in 215 AD, India first rejected the denarius and then the devalued gold coins.

And of course the world moved much slower in those days, with trade between Rome, India and China taking months. Seen in this light, 22 years was very fast indeed.

After 215 AD and the final loss of Rome's position as the owner of the world's currency, Rome's trade, economy and living standards went into tailspins. The "silver" denarius lost so much more of its value that even Roman's [sic] wouldn't take it. Emperor Caracalla introduced a new silver coin, the antoninianus, but immediately started to remove silver from it. Within 45 years, by 268, this coin was nothing but base metal with a thin silver coating.

I must stress again how quickly and completely Roman living standards fell from the time that the rest of the [world] rejected its money as the world's currency."

   -- A Short History of International Currencies by Christopher Weber, April 4, 2005

The events Weber describes happened, ultimately, for a single reason: Rome debased its currency in order to over-spend. Roman emperors basically became counterfeiters, and in doing so they eventually destroyed the Roman currency, the Roman Empire, Roman living standards, and the nation of Rome itself.

There are many examples – far more than most Americans would think – of hyperinflation and currency collapse in history. In the future, the United States will be on that unhappy list, because our own episode of currency collapse is in progress right now.

The dollar is falling so quickly that trying to place a value on the dollar is an exercise in futility. Around the world, people and institutions are preparing to give up on that exercise, as they give up on the dollar itself. Seemingly overnight, we are hearing that the dollar "may lose reserve status" – and already that seems unavoidable. How long before Dr. Roberts' prediction comes true?

As their nation trembles at the edge of an economic Grand Canyon, Americans are sensing changes in the wind – an updraft from the depths below, perhaps – and have begun seeking a path to safety. This is a critically important time, because the right path will save lives – perhaps millions of lives – and move the United States back towards prosperity and integrity. The wrong path will take us into a totalitarian nightmare.

Germans chose the wrong path after the Weimar hyperinflation of the 1920s, and ended up with Adolph Hitler and the National Socialists. Let us not stand idle while America considers her options now: only love and freedom can be the path to life. The road we are on now is taking us, faster than most believe, in the opposite direction.

Love and freedom, or their opposites: we have very little time left to choose. The Paul campaign is by far the largest and strongest tool we have to move things in the right direction. Please consider supporting Dr. Paul in whatever way you can.

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Glen Allport's picture
Columns on STR: 104

Glen Allport co-authored The User's Guide to OS/2 from Compute! Books and is the author of The Paradise Paradigm: On Creating a World of Compassion, Freedom, and Prosperity. He maintains paradise-paradigm.net. This is one in a series of columns on the human condition.