RANT
Didn't have anything meaningful to add to the enlightening Habs debate. Thus the rant.
"But with respect to future debt; would it not be wise and just for that nation to declare in the constitution they are forming that neither the legislature, nor the nation itself can validly contract more debt, than they may pay within their own age, or within the term of 19 years."
Thomas Jefferson, September 6, 1789
(Total U.S. debt is now estimated to be around $ 12 trillion. That's 12,000 billion. That's 12,000,000 million. . This isn't a Democrat or Republican problem. This is an INCUMBENT problem. Consider how the interest on this debt will in the near future impact the Federal Budget. Add in unfunded - off the books - liabilities such as Social Security, Medicare, Medicaid, unfunded Govt. Pensions, Freddy, Fanny, etc; & it's now estimated to be as high as 200 TRILLION. If it were possible to Tax all of the workforces salaries, all small business profits, all public & private corporate profits, & all capital gains at 100% that still won't come close to paying that debt. How eager are those entering the workforce going to be to make the sacrifices necessary to support the generation who left them this legacy? Will they be thankful for their enslavement? The question is: Will the U.S. default on it's obligations? Can you imagine the public out cry if Social Security & Medicare were ended or even severely curtailed? Do you really see any politicians facing this or will this debt be inflated away? If inflation is our course think of the long term purchasing power of the average American dollar denominated retirement account if a barrel of crude is $300.00. How will people on fixed incomes feed themselves & heat their homes? The majority of Americans probably feel this can of worms will be kicked further down the road. Probably so, but somewhere not too far ahead the bridge will have been washed out by a flood of fiat dollars.
Buy tangible assets while you still can......dannblack )
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form -- from a growing number of welfare-state advocates -- was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
From: Gold and Economic Freedom
by Alan Greenspan 1967