When I was a child my family (2 children + Mom and Dad) got along comfortably on one income. But along came sphisticated electronic gadgets, fancier cars etc. and the philosophy that "whoever has the most toys wins". As a society, our western world appetite for stuff grew to the point where we measured our self esteem by comparing our stuff to what others owned and the old Bible verse "For the love of money is the root of all kinds of evil" (1 Tim 6:10)[/I] has been proven true.
SLE
This is not a result of electronics or fancier cars, this is a result of the money changers in Washington, specifically in the Federal Reserve. Up until 1913 the United States was on a Gold Standard but then Woodrow Wilson signed the unconstitutional Federal Reserve Act which established a central bank. Now we still remained on a gold standard, however it wasn't entirely honest. They printed money that wasn't backed by gold, infact that is why we had the Crash of 1920-21 and the Great Depression. Because the monetary base was expanded without a gold backing. The Federal Reserve wrote checks they couldn't cash. All the new money flowed into the stock market and created booms, and then the inevitable busts. It was like giving the economy heroin. For a little while everything would feel great, but eventually the high would wear off and the economy would go through withdrawals because with all the new money and easy credit, people did things they wouldn't normally do. They would invests in projects or businesses that were not practical and when the easy credit dried up the businesses would fail. That was the withdrawals. The Withdrawals were necessary to go through to restructure the economy and get us on a sustainable path again.
The Crash of 1920-21 was actually a larger initial crash than the Black Tuesday Crash in 1929. The difference between the 1920 crash and the 1929 crash was government involvement. In 1920-21 crash the government did nothing. The pain during the crash was bad, but the economy was able to correct itself and grow again. In 1929 after the crash Herbert Hoover intervened and tried to stimulate our way out of the depression, create job programs. Pretty much the typical Keynesian economic prescription that modern day "economists" use. Well because the government was distorting the market, the market couldn't properly correct itself and thus, we had the largest and longest depression in US history.
After World War II the US Govt went around the world and proposed a new monetary system called the Bretton Woods System. The Bretton Woods system made it so that instead of foreign Central Banks backing up their currencies with gold, they would back them up with the dollar... and at the time of creation, the dollar was backed up by gold. Of course, that's the only reason the system made sense, if the dollar was backed by nothing than we couldn't have conned the world into signing up for this arrangement. But, at the time, every other country knew that the dollar was as good as gold, and if they had $35 they could exchange it for 1 ounce of gold, that was the deal that we made with the world. And what was in it for the world? Well, if they held dollars they earned interest. If they held gold, they had storage costs. It made sense. Hold dollars because the dollar is backed by Gold, America was the world's richest country, we had the largest trade surplus, we were the worlds biggest creditor nation, we have 90% of the gold.. Good deal for the world right?
Well it was actually a great deal for the US government, because the minute the government got that privilege they abused it. Because now all of the sudden we could pay for our imports by printing money. Technically the government was supposed to make sure the money was totally backed by gold, but that didn't stop the government, they just lied. They wrote checks that they couldn't really cash, assuming that the other countries would not care, or not notice. Well after the 1960s when spending went through the roof with the Vietnam war, the War on Poverty, the guns and butter economy, the Great Society and all these government programs, we were running large deficits. Some of our creditors began to notice this and realized that we couldn't possibly have enough gold to back up these IOU's, which is what Federal Reserve Notes (today's dollars) were, they were promises to pay real money (gold).
So rather than acting responsibly and allowing deflation, cutting government spending and doing the right thing, the politicians did the expedient thing and an almost unthinkable thing. They Defaulted. Nixon basically told our Creditors "We promised to give you gold for your dollars, we are now going to give you nothing. You can hold on to the dollars if you want, but you are not going to get any gold."
The world should have gone back on a gold standard at that point, but they didn't. They marked the dollar down dramatically, the dollar lost about 2/3rds of its value during the 1970s. Prior to the 1970s a US dollar would get you 4.5 Deutsche Marks and a Swiss Frank was worth about 30 Cents. Well After 1971 A Dollar would only get you 1.5 Deutsche Marks and a Swiss Frank was worth about 80 cents. Oil prices went from $3 a barrel to $30 a barrel. The dollar devaluation is why oil prices went up, it wasn't entirely because of the Arabs, or OPEC, it was because of Nixon and what the government did. Because of all the money we printed, the dollar lost value. Oil Prices didn't go up at all in terms of gold. The price of Gold went from $35 to $800...
And this is where I will get to my point of when our society started to decline and women were REQUIRED to leave home to make ends meet.
A lot of other interesting things happened in the 1970s as well. Loads of women entered the work force, and it wasn't because they were liberated. Women were allowed to work long before that. But as a result of all this inflation and all the taxes, husbands could no longer afford to support their families, so the wives had to get jobs too just to keep their families afloat.
Right during 1971, people's wages stopped increasing with productivity. It is because of the devaluation of the dollar. This is a real reason for the widening of the wealth gap, it's not because rich people are all evil and are trying to steal people's wealth... Who does inflation hurt more? Poor and Middle Class people or Wealthy people? If you are poor and every dollar counts, and the value of your dollars goes down you are hurting. Inflation doesn't hurt wealthy people as much who can afford the higher prices, many people actually profit from Inflation. This is not a consequence of free markets. What's happening is there's transfer of wealth from the poor and the middle class to the wealthy. This comes about because of the monetary system that we have. When you inflate a currency or destroy a currency, the middle class gets wiped out, so the people who get to use the money first, which is created by the Federal Reserve System, benefit, so the money gravitates to the banks and to Wall Street. That's why you have more billionaires than ever before.
Today this country IS in the middle of a recession.. for a lot of people. Michigan knows about it. Poor people know about it. The middle class knows about it. Wall Street doesn't know about it. Washington, D.C., doesn't know about it. But it's because of the monetary system and the excessive government spending. As long as we live beyond our means, we are destined to live beneath our means. And we have lived beyond our means because we are financing a foreign policy that is so extravagant and beyond what we can control, as well as the welfare spending here at home, and we're depending on the creation of money out of thin air, which is nothing more than debasement of the currency. It's counterfeit. And it is a natural, predictable consequence that you're going to have people benefit from it and other people suffer.
The dollar didn't totally collapse in the early 1980s because Federal Reserve Chairman Volcker raised interest rates to 20% and cooled inflation a little bit and created some confidence in the dollar. So the world continued to function and the dollar still remains the reserve currency of the world.
But the system should have failed, that is the problem. We should have gone back to a gold standard. The problem with the system we have now is that a Swiss Frank or an Aussie Dollar and all these other foreign currencies aren't backed by gold because they were backed by dollars which were supposed to be backed by gold. But if the Swiss Frank is backed by the dollar and the dollar is backed by nothing than the Swiss Frank is backed by nothing.
So that is basically when we embarked on this Giant experiment that has failed every time it has been tried. The whole world is on this Fiat money system that is created by the Central Banks. But of course, once the world knew the dollar was backed by nothing, now it was so much easier for the US government to run deficits... Much easier when they had to pretend it was backed by gold under the Bretton Woods system. At least back then, when LBJ was spending all the money, he had to worry that a foreign nation might figure out what was going on. So Basically, When we told the world, "you are going to get nothing for your dollars" then there was no limit to how many dollars we could print.
And that is when the US economy began this massive transformation from the world's biggest creditor, to the world's biggest debtor, from the worlds biggest exporter to the worlds biggest importer. Everything changed when we began to live off the printing press and debt. Because when the dollar can be just printed out of thin air and the world is going to take it, we can buy all these products from our trading partners for nothing.
When the Chinese are making things for Americans, they need land labor and capital, people have to work hard in factories to produce the things we buy. What do we give them in return? Just some money that we ran off a printing press. And what do they do with it? Nothing. All they can do with it is loan it back to us and buy treasuries. And what are treasuries? Just more dollars.
And a lot of people think that the Chinese are benefiting from this relationship. They are not gaining at all, we are the ones benefiting in the short run. We get all the stuff and they get all the work. Well, what good is all the work without the stuff? See, the politicians are trying to say they get all the jobs. Well so what? The slaves had jobs... It wasn't a good deal for the slaves. These jobs are not a good deal for the Chinese if we get all the stuff they produce. The whole reason countries export is so they can import something else. Well what good is exporting if you don't get anything in return? The whole idea behind exporting is not to create jobs, it is really to eliminate jobs. The reason to export is so you can import something else. Because we want to consume and how do you consume as much as possible? If there is something that you can produce really well or that you can make more efficiently than people in some other nation, rather than trying to make everything, you just make the things you make best, and then you trade for things that other people make better than you. But the whole reason to export something is because you want to buy something else with that money. You don't export just so you can have a job, that would be a waste of labor.
What happens when we trade with the rest of the world is, they send us stuff, and what we basically say is "I got nothing for you... But I have an IOU (dollar)".. And they take it because it is the world's reserve currency. And maybe in the back of their mind they think they can use it to buy something. But meanwhile what are they going to buy? What is America making? Every year we make less and less stuff that they want... The stuff that the Chinese want to buy is all made in China. I mean, that's where the stuff that we want to buy is.
And for a while this system was maintained. But now we have this entire bubble... this entire phony economy that is predicated on Americans borrowing money that we didn't save, to buy products that we can't afford and didn't make. And this whole thing is phony. All of our economic policy today is designed to sustain this. Nobody wants to allow it to be corrected, because the correction happens in a recession. The market tried to restructure in 2001 after the Tech bubble, but the politicians didn't want to deal with a recession. A recession is basically like withdrawal symptoms. The govt has been pumping all this stimulus heroin into the economy and it created a boom, but then it wore off and now we are left with the withdrawals. If you want to cure a drug addiction you HAVE to go through the withdrawals at some point. But the government and the Federal Reserve won't let that happen. They do the politically expedient thing and pumped the economy with even more heroin. If I was running a rehab center for heroin addicts and I gave them more heroin, sure, they would love me and I would be popular, but am I really helping them? No. I would be killing them. Well that is what the government is doing.
In early 2000 we had the tech bubble as a result of low interest rates and easy money. What did the government do? They lowered interest rates even more and tried to stimulate the economy. They subsidiezed things like housing. The government made it so low income people could get mortgages with no down payment. The government said banks that refused to give out loans to people that clearly didn't have the means to repay were "discriminating" so the government forced the banks to make the loans. Clearly the banks knew that these loans would go bad, but the government forced them to make them so what did they do? They repackaged them and sold them elsewhere.
Now after 2001-2008 the Economy was doing great. Everybody felt like they won the lottery during the housing bubble. In California a lot of people quit their jobs... Why have a job when you can just buy a house and make $150,000 in a year?
The prices of homes kept going up because of the heroin, because of the govt sanctioned low lending standards. Anybody and everybody could get credit to buy a home so everybody and there brother bought one. That bid up the prices of homes for everyone. (This is currently happening right now in the student loan industry. Everybody can get student loans, more people get loans and thus the prices of college go through the roof).
So eventually the boom wore off and we had a bust. Wealth was destroyed. We built all these houses that nobody needed. We WASTED resources producing homes. Today there are over 18 MILLION vacant houses in the US, most of which were built during the bubble.
In 2008 we started going into a recession again. What did the government do? They lowered Interest rates EVEN MORE... during the housing bubble interest rates went down to 1%. Now they are at 0%. We bailed out the banks and we did multiple MASSIVE Stimulus programs.
We have a lot of problems, and one of the biggest problems is the fact that interest rates are too low. Interest rates have to go up. We are never going to have a real recovery, we are never going to have real economic growth and we are never going to create productive jobs unless interest rates go up. But that is going to be very painful because we are so overly indebted.
What is going to happen when interest rates go up? Banks are going to fail, and next time we won't even be able to think about bailing them out. (which we never should have done in the first place) What's going to happen to the housing market? It's going to go down more... It needs to go down more, that is part of the correction, prices were too high. They are still to high, especially considering that there are 18 million vacant homes. What about the government? What's going to happen when interest rates go up? Well, the government is going to have to dramatically reduce spending. they might have to default on the bonds that they have already sold.
The only reason the government can pay the interest on the debt is because interest rates are extremely low. Almost at 0%. What happens when rates go up? They won't be able to afford to pay for the debt, we won't be any more able to pay our bonds back than the Greeks can. For a while Interest rates were at record lows in Greece, and the Greeks had no problems. But then interest rates went up and now you have a crisis. The same thing is going to happen here. Now there are people that think that is never going to happen because interest rates are never going to rise. Well that's impossible. They have to rise. What is the consequence of keeping interest rates artificially low? We continue to screw up our economy, instead of allowing market forced to correct the imbalances, we make the imbalances bigger. The more we stimulate the economy with a toxin.. because that is what stimulus is, it is a toxic sedative and eventually you overdose on it, the worse the underlying problems in our economy are going to get.
If we keep interest rates low, nobody is going to save. I mean who is going to save money that is depreciating in value even faster than it is now. So it is going to destroy savings, it is going to destroy the ability of the economy to generate capital and to generate growth and production. It's going to create massive inflation.
Now the government can lie about inflation for a while. They can hide it behind these doctored up CPI numbers. The formulas that the government use to calculate CPI are flawed, they are deliberately engineered to get a low number, that's why they are there. But of course when they are measuring prices they are not even measuring inflation, they are measuring an effect of inflation. The government doesn't even include rising food and fuel prices in their calculations of inflation.
Also, for each 1% interest rates go up, the government will have an additional $160 BILLION dollars in debt each year. Imagine if they went up to 20% like they did in the early 80s. Where are we going to get an ADDITIONAL 3.6 Trillion dollars from? That would make the deficit go up to $6.8 TRILLION Dollars. Where are we going to get that money? We can't possibly repay it, we will either inflate it away or default.
So all of our economic and monetary policy is designed to postpone the day of reckoning beyond the next election. That is all the government cares about. "How can we get through 2012 without everything hitting the fan". And they don't care that the policies they are pursuing are just making all of the problems worse. And when we look at the economy and people say "Oh, the economy is growing. Look at the GDP." The economy is not growing. We are spending more borrowed money, that is not economic growth. Look at the debt. In the last few years look how much the debt has skyrocketed, It has grown much more than the GDP. And it will continue to skyrocket under Obama. And even if Romney was elected it still would have gone through the roof.
All this consumption has been financed with debt, it's not real prosperity. It's phony, it's like looking at half of a balance sheet. You are looking at the assets but you are ignoring all the liabilities. Or on an income statement, you look at the income, but you don't look at the expenses. We are not better off because the GDP went up, we are worse off. Where did that money come from? We borrowed it. And what did we do with it? We spent it on consumption. We didn't invest it, we don't have more factory equipment... we blew it. The government wasted it.
The bubble that we had as a result of the cheap money that the Fed created in the 1990s, well that inflated the stock market, tech bubble. When that bubble burst, instead of letting the market correct the problem, George Bush, the Fed and Congress deliberately created more stimulus and that created the housing bubble. When that bubble burst, instead of sucking it up and admitting "Gee, we really screwed up after the last bubble, lets do the right thing now. Let's let the market, run its course." Instead of doing that and taking a more painful recession which was now necessary because we didn't take our medicine the first time, they did the same mistake and now we are inflating a government bubble.
The government bubble is bigger than the housing bubble and it is bigger than the stock market bubble. And it's going to burst, it is no more sustainable than the last two bubbles were, and you can see it in the bond market, you can see it in the currency market, but the real crisis that is coming as a result of the fact that we no longer have sound money, we are printing all this money and running all these deficits. It is going to be a sovereign debt crisis, a collapse of the US government bond market, a collapse in the dollar on a much grander scale than what we are see playing out right now in Europe. And if you remember when the housing bubble first began to crack, and the signs showed up first in the sub prime market, all the experts and all the top economists in the Bush Administration and down to Wall Street were on television, reassuring everybody not to worry, because the problem was all contained in the Sub Prime market. "Just a Sub Prime problem, tiny little problem, don't worry about it, the market is sound".. Well at the time Austrian economists and libertarians were saying "that's not true... It's not just a sub prime problem it is a mortgage problem." And it turned out the Libertarians were right. Everything was already sick... It was just a matter of time before the symptoms showed up in the market.
Well that's the same thing that is happening with sovereigns in Europe. This is not an Italian problem, or a Greek problem, or an Irish problem. It's a debt problem. And we have got way more debt than Europe. Just because we can print money, and we have the world's reserve currency, doesn't mean that we are immune from these economic laws. Right now, I think this is a time in history when the sovereigns are being held accountable. Just like the Italians or the Greeks have borrowed more money than their citizens can repay, the US government has borrowed more money than we can possible repay. And we aren't going to be able to do it by raising taxes on the 1%. We can't even do it by raising taxes on the 99% as if the government could possible extract all that revenue.
We are going to have to go through a restructuring or we are going to have to go through a default, one way or another. And there are two ways that, that can happen. We either legitimately default and don't pay, we tell bond holders we won't be able to pay them 100 cents on the dollars and tell pensioners that they are going to have to take a cut, and we gut the Federal Budget for the military and federal social spending including Social Security, Medicare and Medicaid.... Or we just print the money up and pay them back with worthless dollars. That's it. There's only two ways that we can repudiate our debt. There's no way that we are going to pay the debt. The Chinese have to know this, and we are going to figure this out.
So yeah, the Gist of this is that because the dollar is less valuable, women are now required to work as well just to make ends work. It used to be that the Husband could work and have enough money to make ends meet. That is rare now. I probably should have just said that from the beginning... Oh well
