-- Posted Tuesday, 2 September 2008 | Digg This Article
| Source: GoldSeek.com
Rick's Picks
Tuesday, September 2, 2008
"Phenomenally accurate forecasts"
"What Will Save America?" We raised the question a while back, inviting readers to submit short essays on the topic. More than 50 of you responded, some with the kind of ideas that are all but certain to percolate into the presidential campaign as it heads down the home stretch. There can be little doubt the recession will grow more severe between now and November, even if it has yet to be officially acknowledged. Although the absence of statistical recession has taken pressure off McCain and Obama to address the economic crisis in a meaningful way, there is no way the next President will be able to fudge dealing with it from Day One.
We cannot predict what either candidate is likely to attempt in order to resuscitate an economy sinking into depression, but our essayists overwhelmingly favored one measure above all: do away with the Federal Reserve. While we, and doubtless many others, endorse this idea wholeheartedly, we doubt that the powers that be could get seriously behind it. But who knows? Dumping the Fed would probably be the very first priority of President Ron Paul. However, we shudder to imagine how dire our situation would need to become before such a man became electable.
In the meantime, there are other things that can, and will, be tried. They will have to be, otherwise America could spend a generation or longer wallowing in poverty. Asian nations will be the first to emerge from the coming global depression, and we will have to beat them at manufacturing in order to re-grow our wealth the old-fashioned way. And make no mistake, there will be no other way to do it. The world will have no need for "financial superpowers" who excel mainly at leveraging credit, as the U.S. has long done. Do we have what it takes to compete in such a world? Our guess, and fervent hope, is that Yankee know-how will always count for something.
With these concerns in mind, we present today the lucid thoughts of Marc Brumberger, third-place winner of a $300 scholarship to the Hidden Pivot Seminar. Marc wrote as follows:
Toward Personal
Responsibility…
By Marc Brumberger
Let's first identify the nature of America's predicament. I believe our woes stem from an erosion of personal responsibility and the American work ethic, a federal government whose spending and regulations are out of control, and an economy entering an historical dislocation. These problems are interrelated, and their primary source is our Federal Reserve system, particularly its fiat currency and fractional reserve underpinnings. A hard currency (i.e., metal-backed) operating in a pure, free-market banking system would prevent such problems from reaching the debilitating levels we have today.
Currently, our money is created as a debt against taxpayers, rather than being actual capital accumulated through savings from production. On top of this debt-based currency, fractional reserve banking allows banks to create even more debt by loaning out much of their deposits. Reserve requirements have decreased over time in order to keep our credit-addicted society from entering withdrawal. Unfortunately, as with a heroine addict, withdrawal or death are the only two possible outcomes.
Government's Tentacles
How does our current economic system allow the above problems to emerge, grow, and fester? First, it enables the federal government to swell and weave its tentacles throughout society. Politicians are going to pander – that is human nature. The Constitution was designed to inhibit this pernicious political reality by limiting the federal government's powers. We are supposed to be constrained from helping ourselves to the public coffers. Unfortunately, the language of the Commerce Clause has been rendered all but meaningless by the Judiciary over the last century – another predictable result of human nature. Once elected officials were free of the Constitution's restraint, they could promise the world to their constituents, and fiat money printing presses and fractional reserve credit expansion allowed them to write the checks – for a while.
Once government largesse was flowing, our downward spiral was set. With the creation of giant social welfare/entitlement programs, moral hazard set in. Many people began to rely on the government to provide for them in hard times, rather than relying on themselves, their families, and their communities. This led to an erosion of our work ethic and the dissolution of personal responsibility, and likely aided in the weakening of the bonds of marriage and community. Further moral hazard was created by bailouts of large corporate failures and the creation of FDIC insurance, which minimized people's concerns about risk. This in turn led to over-consumption and mal-investment.
Hard Currency 'Key'
Finally, our central planners have tried to steer the economy as though they know better than free markets. However, instead of eliminating the business cycle, they merely exaggerated the booms and busts. A hard currency and free market banking system would greatly reduce the magnitude of these problems. First, the government would have to live within its means, rather than spend on the backs of future generations. Government spending and regulation would be constrained by the realities of a finite currency, if not the Constitution. Americans would be free of the illusion that government is omnipotent and would understand that they must take active responsibility for their own well-being.
With that renewed sense of personal responsibility would come greater attention to one's investment and banking choices. People would consciously engage in risk-reward analysis. And because a hard currency would experience a gradual deflation, rather than inflation, over time (measuring money supply against available goods), individuals could opt for safety over growth, since the purchasing power of their dollars would actually increase.
Total Meltdown Necessary
While the business cycle and human psychology will always exist and exert themselves on the markets, the economic booms and corresponding busts would be greatly moderated under a sound financial system that is not susceptible to massive credit creation and artificial stimulation.
What will put an end to the Federal Reserve and save America? I believe it will take a complete financial meltdown. A slow deflation like that of post-1989 Japan just won't do it. Under that scenario, many Americans would turn to Uncle Sam to fix each unfolding crisis, and America would become increasingly socialist or fascist. However, an economic calamity worse than the Great Depression that outpaces federal efforts to ameliorate the situation might wake Americans from their slumber. The outright bankruptcy of our government might force a majority of Americans to realize why free markets and a sound currency are necessary for long term stability, and why government planning and control, no matter how noble in its inception, is always destined to lead to calamitous distortion and abuse over time.
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Fall Seminar September 10-11
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 2 September 2008 | Digg This Article | Source: GoldSeek.com
