Is Trickle-Up Poverty the New Prosperity?
While being assaulted on all sides with Barack Obama’s “trickle-up poverty” and other progressive government boondoggles like Obamacare on top of trillion-dollar national deficits as far as the eye can see and well beyond . . . a strange new phenomenon has emerged to further muddy the waters already obscuring our future hopes. China is now selling off American debt and ridding itself of dollars so that now the largest holder of American debt is . . . drum roll, please, Maestro! . . . the United States Federal Reserve Banking System. Yes, you read that correctly. Federal Reserve Chairman Ben Bernanke is now in the voodoo economics business all the way up to his fuzzy skull.
Over the last three months, China has sold roughly $19 billion in treasury bonds and other U.S. debt instruments. China, in other words, has become concerned about the sheer size of the U.S. overall debt and the high probability that the Federal Reserve’s unceasing money printing for the last twenty-nine months has debased and devalued the world’s reserve currency for ‘lo these last 60+ years: the American Dollar. Looking back in history that’s exactly what happened to the British Pound Sterling which had been the World’s Reserve Currency for over two hundred years until the Brits ousted Winston Churchill with World War II still not entirely won and brought in their Labour (progressive-liberal) Party to run the show. Labour inflated their once proud currency so much that the citizens and nations of the world began dumping the Pound and fleeing for gold, silver, the gold-backed Swiss Franc and most commonly for the American Dollar.
The American Federal Reserve now standing as the largest holder of U.S. Treasury debt means that financing Obama’s third trillion-dollar federal budget deficit in succession has become something the rest of the world has begun to shy away from. China is still the largest foreign-holder of American debt, but the Chinese seem determined to remove their names from the top of that dubious list (other top foreign holders of U.S. debt instruments include: Japan, Russia, Brazil, India, Korea, England, France, Germany and Saudi Arabia). It also suggests that faith and trust in the “Almighty Buck” may be reaching a low-ebb.
Unlike hard money (gold and silver) and all hard-money backed currencies such as the Swiss Franc and the Kruggerand-backed South African money . . . paper money has zero intrinsic value . . . it only exists and continues to serve so long as people trust the government issuing the paper bills (and that goes double for a nation’s paper debt instruments). Bernanke has run the printing pressings so long that on a sheer mathematical basis the dollar of today is technically worth only as much as 3.4 pennies compared to the dollar of late 2008 when the financial crisis reached its low spot and the U.S. government started stepping in. What’s going on here? Why is Bernanke printing so much money?
Bernanke is a well-known student of the Great Depression and has written numerous articles suggesting that the reason the Great Depression turned from a “little-d depression” into a “capital-G/capital-D Great Depression” is because there was never sufficient money in circulation to head off relentless deflation. That is, he believes a vicious-circle of deflation was created and that the continuous dropping of prices fed off itself and destroyed jobs which destroyed buying power which destroyed businesses which destroyed more jobs, etc., etc.
There is some truth to what Mr. Bernanke suggests . . . but it’s a lot like yanking your starting pitcher off the mound with the score going from 2-1 in the 6th to 8-1 against you in the 8th . . . once so much damage has been done . . . almost nothing will work. Perhaps the twirler should have been sent to the showers when he looked tired after 120 pitches before the start of the 7th? Or after he’d allowed a home run and walked the next two batters with no outs in the 7th? Poor decisions early in a process can make finding good decisions later . . . very, very difficult.
Rajjpuut suggests a different reading of history is more accurate. Almost precisely a full decade before the infamous 1929 stock market crash we had a depression start-up that 98% of Americans never heard about. Progressive Woodrow Wilson’s so-called “Invisible Depression” started in late 1919 and was full-blown by the time Warren G. Harding was elected in November, 1920; and much worse when Harding took office in March of 1921 (they had a four-month Lame-Duck session in those days). Production had already dropped nation-wide by 26%. Ignoring the suggestions of his Commerce Secretary Herbert Hoover for immediate implementation of numerous government aid programs and other subsidies . . . Harding did only four things:
1. Cut government spending by 48%
2. Cut taxes by 49%
3. Paid down the nation’s debt by 30%
4. Slashed government regulatory interference across the board
In fifteen months the economy had rebounded mightily (just a couple months later, Harding died in office so he barely got to enjoy his success). The United States was now well into the “Roaring Twenties” the most single prosperous rebound of any economy in the recorded history of the planet. Calvin Coolidge, Harding’s vice-president continued the Harding policies faithfully, but chose “not to run” in 1928. One of the most popular men in America and a famous philanthropist and author, Herbert Hoover ran for the presidency for the Republicans and won in a landslide over Democrat Al Smith. Only three men in history have become president of the U.S. without extensive military or business executive or elected experience: Taft, Obama and Hoover.
Hoover was a famous geologist and mining engineer who married the daughter of a rich banker. He believed mightily in the “Efficiency Movement” (if you’ve read Cheaper by the Dozen, the father, Frank Gilbreth, was founder of the Efficiency Movement) and believed that the economy was riddled with waste and inefficiency which could be dramatically improved by “experts” like him once they identified the problems and solved them. Hoover became, according to the New York Times “one of the Ten Most Important Living Americans” for his charitable and humanitarian work during World War I.
Hoover administered distribution of over two and one-half million tons of food to nine million war victims and was later named head of the brand new U.S. Food administration by Woodrow Wilson when the country entered the War. A member of the Supreme Economic Council after the war, as well as head of the American Relief Administration he continued organizing shipments to millions of starving people in Central Europe. A well-known philanthropist, Hoover like Teddy Roosevelt and Woodrow Wilson was like them a self-described “Progressive and Reformer.”
He came to be known as “Wonder-Boy” during the Harding-Coolidge administrations for his notorious and comical lust for expanding portions of everybody else’s bailiwicks into new roles for the Commerce Department. The reporters of his day called Hoover, "the Secretary of Commerce... and Under-Secretary of Everything Else!" Long before he had entered politics he had abandoned laissez-faire economic thinking. Outside of engineering and charitable work he was a terrible micro-manager always on the look out to fix what wasn’t broken. History shows that Hoover did one very important thing as Commerce Secretary: he codified and standardized traffic lights across the nation.
As soon as he was elected president Hoover set about planning the undoing of much of the good work created by Coolidge and Harding. He raised government spending and taxes and debt. He initiated numerous “eleemosynary” style federal activities (reminiscent of his charitable work in World War I) to protect workers and farmers and businesses from the natural vicissitudes of the free market economy. His biggest mistake was instituting a huge tariff designed to protect American farm workers from foreign competition but remove such protections from business; the Smoot-Hawley Tariff Act was to cause great consternation in the business world. The agricultural tariff increase was the second highest in U.S. history and put a lot of people out of work. Overall, once the stock market crashed in 1929, Hoover instituted the biggest big-government policies the nation had ever seen.
Franklin Delano Roosevelt (who had once praised Hoover in 1919 and tried to get him to run as the Democratic presidential candidate) and his v-p running mate Garner accused Hoover of being a socialist and promised that when elected they would:
1. Cut government spending severely
2. Cut taxes dramatically
3. Pay down the nation’s debt
4. Slashed government regulatory interference across the board and eliminate many of the socialistic programs of Hoover
Since these amounted to little more than promises to do what Harding had succeeded with in 1921, people embraced FDR and he won in a landslide taking office in March 1933. History shows that the bottom of the Great Depression was reached in July, 1933, and the bottom of our own “Great Recession” was reached in March, 2009, in each case shortly after the new president took office. Ordinarily the expectation is that after the bottom is reached, prosperity begins to return within six months. In both FDR’s and Barack Obama’s cases, however, government interference made things much, much worse.
FDR, of course, did exactly the opposite of what he promised. He dramatically raised taxes and government spending and debt and deficits. He expanded all of Hoover’s social and economic programs and added 40 of his own (just one law in 2010, Obamacare, created 384 new government agencies, so FDR was a piker compared to Barack) and made big government a way of life. He also confiscated gold coinage and then instituted an overnight inflation of 69% by pegging the dollar to gold at $35 per ounce (he’d given the citizens just $20.76) impoverishing the taxpayers while enriching the government. Of course doing what Harding did and avoiding what Hoover and FDR did is just common sense . . . something seemingly beyond Obama and Bernanke . . . .
In June, 2009, when the full-folly of the Obama policies began to outline themselves in sharp contrast to common sense . . . the Chinese held $896 billion in American debt; today they hold $764 billion a 15% reduction in greenback holdings. Since an outright flooding of the market with U.S. debt notes would destroy China as well as the U.S., it seems the Chinese are now buying up gold and silver in large quantities and making an orderly retreat from the dollar – leaving our suspect currency in the hands of less astute nations and of Ben Bernanke. Since the American trade deficit with China alone reached a record $273.1 Billion in 2010, the Chinese are going to have to work awfully hard to keep lowering their dollar holdings . . . so one suspects that gold and silver will continue to rise quickly.
Bernanke’s monetary policy, known as “Quantitative Easing” a.k.a. “irresponsibly printing money,” has seen the Federal Reserve recently buy up $600 billion worth of Treasury debt. Big Ben’s plan is to hold down interest rates and thus help lower the cost of federal government borrowing (to cover the Obama deficits) and incidentally increase inflation which he believes will stimulate economic growth and create jobs. This is a very Keynesian economic philosophy. In the months prior to his death in 1946, John Maynard Keynes (as the ending of the British Pound Sterling’s 200- year reign as the world’s reserve currency approached) who had long preached against the classical economic wisdom of Adam Smith and Smith’s “invisible hand of the marketplace,” like an atheist seeking God at the last hour repented . . . .
As Britain’s economic hole under the progressive Labor Party deepened, and his own death drew near, Keynes told Henry Clay of the Bank of England of his hopes that Adam Smith’s “invisible hand” would somehow save the English economy and yank Britain out of the economic swamp it found itself in: "I find myself more and more relying for a solution of our problems on the ‘invisible hand’ which I tried to eject from economic thinking twenty years ago." The inflation destroyed the Pound Sterling as the Labor Party continued with government largesse and Keynes’ deathbed conversion went to naught.
Here in America recent spikes in food prices and energy costs are a direct consequence of Bernanke’s unofficial devaluation of the dollar. The government continues under-reporting of inflation assisted by the Labor Statistics Bureau’s refusal to include fluctuations in prices of food and energy. Bernanke, however, believes that deflation is still the rule and continues to inflate the currency to avoid a second Great Depression. Since job creation by the private sector is the key, perhaps the government ought to try: cutting spending; cutting taxes; eliminating debt; and getting the government out of the way of the free market . . . oops, that’s been mentioned before . . . .
Ya’all live long, strong and ornery,
Rajjpuut
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