“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” – John Maynard Keynes
I am lucky to have friends. But it’s not merely the number of people I can count among their ranks that makes me lucky — it is the sheer magnitude of their knowledge and experience. And yet at the same time, my friends — in the aggregate — exhibit a remarkably wide array of beliefs and perspectives. I endure a lot of criticism from them for my theories — most notably my belief in the imminent failure of our current economic system, and the fact that (at least financially), I am short the USA.
When I say I’m “short the USA,” that means I have placed a number of financial bets — not against America and its people, but rather the government and its abuse of our monetary system. You might think of it as an insurance policy against the astronomical debt-level the U.S. government has created. And it’s this sort of behavior that earns me so much heat from the people I’m close to — as well as from people I’m not so close to. Without sounding too pathetic or dramatic, I think it’s fair to say I’m deeply misunderstood.
Many of my leftist friends accuse me of being a Republican. They say things like, “All you care about is money and the stock market. You want to destroy the environment. You’re a Republican.”
I don’t want to destroy the environment. To be honest, I don’t even really care about the environment. Don’t get me wrong — I like oxygen and trees and water just as much as the next guy — but I think it’s exceedingly arrogant for human beings to think we can destroy the environment. Ninety-six percent of all species that have ever lived are now extinct. Humans might be able to do some damage, but even a thermonuclear war will not destroy life on earth. Granted, it would destroy humanity — and that would certainly be problematic. But life is resilient and will be quite content to go on without us. I suppose you could call me environmentally conscious inasmuch as I would like humanity not to destroy itself.
As for the rest of it, yes, I love money and I wish I had more of it. Toward that end I shall pursue its acquisition with great enthusiasm. Of course, in that regard, I’m no different than anyone else on this earth – including my leftist friends; I’m just not ashamed to be honest about it. In any case – and despite my love of money — I am not Republican.
On the other side of this confusing equation, I have a rather impressive number of conservative friends who think I am a Democrat. They say things like, “You think the pot should be legal, and you think the gays should be allowed to get married, and you think the Mexicans should be allowed to cross the border with impunity and overrun this country. You’re a Democrat.”
Yes, it’s true — while I am neither a pot-smoker, a homosexual, or hispanic, I do ally myself with those movements. And yet despite my subscription to such seemingly “horrifying” social positions, I’m afraid I have some troubling news for my many right-leaning brothers and sisters: I’m no Democrat.
I think Barack Obama is a fine statesman, an eloquent speaker, a rather handsome man, and a gifted hand-shaker. But he is a horrible economist. And since the economy is the most important thing in the universe right now, I’m going to focus on that. Further, since we are talking about economics, I’m just going to lay it all out for you: Democrats are screwing things up. Badly. And they’re getting plenty of help from Republicans.
For decades, the United States has been an arrogant and profligate nation, full of spoiled brats who borrowed as much as possible — fueling an insatiable collective desire to have more stuff. We have buried ourselves in designer clothes, new cars, houses, and boats. I admit much of the problem derived from a misdirected ethos for which we only have ourselves to blame. But every epistemological development has its roots, and it is not enough to say the American people simply woke up one morning, got out their wallets, and suddenly became gluttonous consumers. There is always a catalyst, and in this case – as is so often true — it was the government.
Washington D.C. is full of politicians who must be elected. In order to do that, they must make their constituents happy. But in order to make those constituents happy, politicians must promise them stuff. And politicians have figured out that the most expedient way to make stuff accessible to their constituents is by manipulating the money supply. So the government makes money cheap by lowering interest rates and printing currency at an ever-increasing rate.
What better way to become popular? Just monkey with monetary policy until house payments become affordable for everyone. Then increase the money supply at a moderate rate – thus creating the illusion that otherwise relatively static asset-classes are actually increasing in value (like houses, for instance).
While we’re at it, why not create programs that make tuition affordable for everyone? And if we’re going to do that, why not just go ahead and create a national healthcare system everyone can afford? Are you worried about the cost? Don’t. We’ll print more money and lower interest rates.
Unfortunately, these “solutions” – which seem so elegant on the surface – actually form the very foundation of the enormous problem we’re facing at this moment. When a government subsidizes any commodity, good, or service, it necessarily creates demand — which in turn drives prices higher. But the prices aren’t real – they’re distorted constructs driven by false demand. Eventually the constant, steady increases sought by printing currency turn into explosive manias — the bubbles with which we have become all too familiar.
Our government has perpetuated this terrible lie, creating artificial affordability and completely unrealistic valuations for almost every asset-class in the economy. But no Ponzi scheme can last forever, and the consequences of so many decades of financial mismanagement have descended upon us. Yet we haven’t even come close to seeing the worst of it.
At the very moment when governments should be cutting spending, raising interest rates, and pulling currency out of the economy, they are doing the exact opposite – and this is true of every major economic power in the world. The United States alone has committed to spending almost $13 trillion to battle this economic crisis alone.
Where will the money come from? Unfortunately, most of it is coming from the printing presses, and that means hyperinflation is on the way. I know some of you have a hard time believing that, so I guess we’ll just have to wait and see. But I stand firm with my conviction. It’s just math.
In the meantime, if you want my advice, put on your crash helmets and short U.S. Treasuries; the ride is going to be fast, furious, and very profitable for those of us who have been prescient enough to realize that the United States we know today has almost none of the qualities endowed to the government of the same name created in 1789. It may take a while for us to get there, but it is coming.
So where do I stand on the political spectrum? You’re probably not going to like it. I am a champion of free markets, human rights, social progress, and the growth of knowledge. And I actually really do like Mexicans, homosexuals, and pot-smokers. If you absolutely insist on ascribing a label to me, I suppose I would best be described as a classical Jeffersonian liberal.
And Mr. Jefferson would be as appalled as I am at what has become of the Great Experiment.