"It [the State] has taken on a vast mass of new duties and responsibilities; it has spread out its powers until they penetrate to every act of the citizen, however secret; it has begun to throw around its operations the high dignity and impeccability of a State religion; its agents become a separate and superior caste, with authority to bind and loose, and their thumbs in every pot. But it still remains, as it was in the beginning, the common enemy of all well-disposed, industrious and decent men." ~ H.L. Mencken
The End of America
Exclusive to STR
October 7, 2008
"Trends which cannot continue, don't." -- Attributed to Warren Buffett and others
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The most obvious trend which cannot continue today is the maintenance of prosperity in America by means of ever-increasing debt and monetary inflation. The America we grew up in, the America we are used to -- in terms of not only prosperity but also world dominance, freedom and human rights at home, respect around the world, and in other ways -- that America is already gone, and we are living in the vapors and shadows of its corpse.
Americans and indeed people everywhere will increasingly be asking themselves who caused the epic financial collapse that has already destroyed trillions of dollars in wealth, slowed the economies of nearly every nation on Earth, and generated a surge in unemployment and homelessness in America and elsewhere. I have written about the causes previously; see, for example, Destruction by Paradigm: How the United States wrecked the world's most robust economy and impoverished its own people from March of 2007 (especially section 3) and will not discuss them in detail here.
The free market (something we don't actually have) has been set up as the fall guy, but the true culprit is government coercion and its results -- our unconstitutional central bank; the unconstitutional abandonment of the gold standard; corporatism and resulting corruption of the regulatory process, to name a few highlights. The current nightmare has been over a century in the making, so don't expect it to be solved anytime soon, like "in your lifetime." Repair of the damage, assuming it ever happens, will take far longer than that.
It is worth noting that repair could happen much faster, if a return to something approaching genuine freedom could be engineered. I don't see that as being in the cards, however, although I would be thrilled to be wrong.
More likely, the problems currently scaring us to death are just the start of an epic descent into Hell, a cautionary event that will be studied and retold for a thousand years and more, assuming the human race survives that long. I am sorry to be so downbeat, but I can only call it as I see it. Today's situation will appear cheerful in comparison even a year from now, and not only financially.
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This global financial crisis was not only foreseeable, it was actually foreseen and described years ago -- not by government bureaucrats (other than former OMB head David Walker), not by politicians (other than Dr. Ron Paul [video of Paul speaking after the bailout bill passed, 4 min 14 sec]), not by most of the talking heads on television, not by most financial commentators, but instead by those few observers who have at least some understanding of Austrian economics and whose careers do not involve boosting the corrupt, corporatist system that has been devouring America for decades.
The people most recently responsible for creating this problem are now telling us that they know how to fix the problem -- and the fix, naturally, involves taking incomprehensibly vast sums of money from the American public and handing that money to the banks and other institutions and connected, wealthy individuals who were the immediate, proximate cause of the problem.
Yeah, that'll work.
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I opened the file for this column almost two years ago, then put it aside and forgot about it. After last week's breathtaking betrayal of the American public by Congress and the President, I decided to return to this column and finish it. As a reminder that today's crisis has been building for years, here is the opening section I originally wrote:
As I begin writing this (on December 4th, 2006 ) everything seems fine.
By the time you read this, the problems may or may not be apparent to most Americans.
On Friday, December 14, 2006 , the U.S. federal government is scheduled to release the annual Financial Report of the United States , which -- unlike the budget figures constantly reported in the news -- uses industry-standard GAAP accounting. This is the type of accounting your business uses; the deficit and other numbers we usually see about our government's finances are generated by, essentially, cash flow analysis. These figures do not account for liabilities that are building up, including future obligations for Social Security, Medicare, and so on.
The difference is stunning.
What is the budget deficit for fiscal year 2006?
We've been told it is "only" $248.2 billion -- actually an enormous number, a frightening number for any thinking person. With 300 million men, women, and children in the U.S. including perhaps 125 million adults with jobs in the private sector, $248.2 thousand million (there being a thousand millions in a billion) means the new federal debt created this year amounts to roughly $2,000 for every business owner and non-government employee in the country. That's not total federal debt: it's just NEW debt for 2006, as reported by the federal government. Even counting infants, children, the retired, students, the unemployed, and government employees (who are, of course, paid with tax dollars), the new debt adds over $800 to each person's federal debt load.
Wait until you see the real numbers.
And indeed, as you know, the real numbers were horrible -- and have only gotten worse.
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Speaking of "the real numbers", the amount of government debt Americans have recently been saddled with is vast beyond comprehension. As you look at the chart below, keep in mind that a trillion is a thousand billion. United States total GDP is about $13.78 trillion, and world GDP is roughly $65.61 trillion, according to (shiver) the CIA factbook site.
Chart from The Dollar is Doomed by Jennifer Barry
$2.092 trillion is a significant percentage of America's entire Gross Domestic Product -- and remember, this is NEW debt, not previously-created federal debt (presently over $10 trillion) and not current unfunded liabilities such as Social Security and Medicare, which are perhaps another $100 trillion (other figures are available; use a search engine and pick whatever number you prefer -- they're all impossibly large). This is debt on a dizzying scale; debt on a scale that absolutely cannot and will not ever be repaid, except (possibly, if the government survives long enough) in near-worthless, inflated dollars.
Consider the Zimbabwe dollar, which was worth substantially more than the US dollar in 1980 ("At the time of its introduction, the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47" per this Wikipedia article). The Zim $ is now worth essentially nothing, and that's despite the original Zim Dollar having been replaced with a new version ("the second dollar") and then a still-newer version this past July at 10 billion to one! At the time the original "old" dollar was replaced in August 2006, its exchange rate was over half a million Zimbabwe dollars to one U.S. dollar. Clearly, things are deteriorating at an accelerating rate in what had been, not so long ago, one of Africa's wealthiest nations. Also clearly, a single Zimbabwe dollar (a theoretical construct, really) is worth almost exactly nothing. A loaf of bread in Zimbabwe costs more than 100 billion dollars -- which is also the maximum allowable cash withdrawal from a Zimbabwe bank, by law.
The CIA Factbook site has this to say about Zimbabwe's monetary woes:
The Reserve Bank of Zimbabwe routinely prints money to fund the budget deficit, causing the official annual inflation rate to rise from 32% in 1998, to 133% in 2004, 585% in 2005, passed 1000% in 2006, and 26,000% in November 2007. Private sector estimates of inflation in 2007 are well above 100,000%.
Well above one hundred thousand percent? In fact, Steve H. Hanke pegs the current (late September 2008) annual rate of inflation in Zimbabwe at -- this is not a misprint -- 531,000,000,000%. Yes, five hundred thirty one billion percent. For readers who still believe hyperinflation is a rarity, Hanke provides a list of 29 recent examples in Hyperinflation: Mugabe versus Milosevic. (Note: the chart figures in linked article are for monthly inflation rates).
Clearly, if we make the United States dollar worthless enough, then we can repay all those trillion-dollar debts! Just as clearly -- so clearly that the world is starting to notice and to modify its behavior accordingly -- this is the actual plan in Washington .
Returning to "the real numbers" that America is drowning in: If $248.2 billion is roughly $2,000 for every American with a non-government job or business, how much is $2,000 billion? Answer: over $16,000 per American with a non-government job or business. Again, that is just new debt created recently for the bailouts. Jennifer Barry (she of the chart shown above) points out that:
"Despite Bernanke's assurances to the contrary, these bailouts mean tremendous inflation of the money supply. The U.S. can no longer avoid hyperinflation--it is here. The effects can hardly be overstated when the reserve currency of the world is debased so rapidly. Empires disintegrate and social upheaval occurs. Dollar depreciation is not apparent to the masses yet, but once the realization occurs, the social effect will be explosive. I believe this is why a U.S. Army brigade from the 3rd Infantry Division has been given orders to patrol America 'to help with civil unrest and crowd control.'
"The dollar is doomed but most people don't know it yet."
This is what putting government in charge of the money supply gets you. The American dollar may not plunge to the levels reached by the Zimbabwean dollar, but it will plunge in value; the only questions are how fast and how far. For that matter, the US dollar has already plunged in value, having lost about 97% of its value since the Federal Reserve was created in 1913 -- when a $20 bill could be exchanged, by law, for a one-ounce gold coin. (You can check how much gold a $20 bill will buy today -- "almost none" is a good guess -- at 321gold.com). For that matter, the Constitution's Section 10* still requires that our money be gold and silver (the section has never been repealed) -- just another example of the lawlessness that has increasingly characterized our government over time.
For a short refresher course on the topic with focus on the current financial crisis, here is Ron Paul on CNN recently (video, 5 min 31 sec).
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The financial crisis now underway is just one element in a major, multi-pronged threat to love and freedom here at home and around the world. As is typical in a crisis, government's response has been to take more money and power from the people and gather that money and power to itself. Tyranny advances crisis by crisis, and this effect is so powerful that governments have often created crisis events rather than wait for one to appear on its own. Whether the present crisis has been engineered purposefully, as some believe, or is entirely the result of clueless and corrupt behavior on the part of government regulators, investment bankers, elected officials, and others, the result is the same: a screaming financial emergency that is being milked for all the money and power the elite can get from it.
For an in-depth look at how severe is the immediate danger to our lives and liberty, I highly recommend this recent interview with author Naomi Wolf (27 min 52 sec, and well worth the time), in which she discusses why strong, direct action is needed NOW to prevent a complete descent into tyranny. By "direct action" she means, among other things, arresting George W. Bush immediately. Ms. Wolf's sense of urgency is palpable and well-supported, and she describes a number of things Americans can do to oppose and possibly prevent the collapse of freedom in America . She is cautiously optimistic, an attitude bolstered by her finding that tyranny has in fact been thwarted by citizen action more than once in history.
Ms. Wolf is the author of a book with the same title as this column, which outlines her research into the methods historically used to impose fascism in formerly free (or relatively free) nations. The reader will see immediately that these ten steps have already been used to one extent or another in the United States , especially since 9/11/2001 :
1. Invoke a terrifying internal and external enemy.
2. Create secret prisons where torture takes place.
Develop a thug caste or paramilitary force not answerable to citizens.
Set up an internal surveillance system.
Harass citizens' groups.
Engage in arbitrary detention and release.
Target key individuals.
Control the press.
Treat all political dissidents as traitors.
Suspend the rule of law.
Wolf's book (the full title is The End of America: Letter of Warning to a Young Patriot) explains how the above pattern was followed in Hitler's Germany , Mussolini's Italy , and in other places. Frighteningly, it is a plan that works, and America 's federal government has been visibly following this plan for several years now.
Once again, Wolf believes that the present level of destruction can be reversed -- that the American republic has not yet been ended with certainty. This is a refreshingly positive view, although I have difficulty sharing it. She stresses, however, that unless a large number of Americans begin to effectively oppose the destruction of their liberties, and quickly, "the end of America " will no longer be a warning but rather a fait accompli.
Article 1, Section 10 reads: "No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility." [Emphasis added]