The Biggest Lies Are Not Even Being Spoken
As charge and counter charge fill the air waves and the pundits debate the truth or falsehood of particular campaign ads, the biggest lies of this campaign season are passing unremarked. Neither the Republicans, nor the Democrats are telling the American people the truth about our economy and the unsustainable promises both foreign and domestic which have been made and which will be broken.
For the past four years we have been printing the money to pay 40% of our Federal bills and whichever candidate wins, Mr. Romney or President Obama, next year we will do so again. Oh sure we hide it under the terms quantitative easing and pull the money from the Fed mattress, but it doesn’t matter how we label it, the Federal government is bringing in about 60 cents of every dollar it spends and the Federal Reserve is buying up the paper issued to cover the shortfall. This has happened before and it follows a familiar life cycle of fiat currency.
Fiat Currency Life Cycle
Alexander Hamilton’s New Currency Regime
Earn and Spend (1790-1913) 123 years (Savings rewarded, Borrowing discouraged)
Wilson’s Tax and Spend (1913-1980) 67 years (Savings neutral, Borrowing encouraged)
Reagan’s Borrow and Spend (1981-2008) 27 years (Savings discouraged, Borrowing rewarded)
Bernanke’s Print and Spend (2008-Present Day) 4 years and counting (Savings actively punished )
Disaster/Currency Reconstituted (Date uncertain, est. before 2035)
New Currency Regime
Earn and Spend (Savings rewarded, Borrowing discouraged)
I would expect our current print and spend period to be relatively brief, though Japan proves that an economy can run on a print and spend basis for decades. Each of the cycles has been roughly half the length of the one before, so a best guess estimate of the day of reckoning would be approximately 2021. Postponing the day of reckoning doesn’t eliminate the day of reckoning; it merely delays it, and deepens the ultimate pain.
In this country, both at the end of the Revolutionary War and in the Confederacy during the Civil War we saw this life cycle play out. The hard money policy of the post Civil War era, though famously bemoaned by William Jennings Bryan in his cross of gold speech, was the result of people who had lived through a fiat currency crisis. This hard money “earn and spend” policy lasted until the Federal income tax opened the door to tax and spend economics – a period that saw the Federal government create a huge military industrial complex along with social insurance plans such as Social Security and Medicare (AKA guns and butter). It is politically difficult, if not impossible, to sustain a “guns and butter” policy without at least a tax and spend government.
If we are headed for a fiat currency day of reckoning and a return to hard currency and earn and spend government which is the standard outcome, the Federal government is looking at both a radically smaller defense budget and a significantly smaller social safety net.
Neither political party is telling the American people the truth.