Monetary Crack Cocaine

Avoid the Pain With Monetary Crack Cocaine

We may be avoiding withdrawal pains today, but we are impoverishing our tomorrows. The dollar has hit all time lows. Real estate and stock market values have taken a beating. Some major financial institutions face insolvency. Banks have failed or are on a verge of doing so. Our individual savings rate has dropped to nearly zero.

Not everything, however, is going down. Under President Bush’s administration, federal government and federal programs continue to grow at their fastest rate. Home foreclosures hit all time highs. Inflation is increasing, federal deficits soaring. Interest paid to foreigners who hold our debt reaches yearly new highs. Individual household debt up 15 percent and consumer debt up 22 percent.

Do we need to consider our ways? Our bill for living beyond our means is enormous and coming due. But, to avoid the pain of withdrawal from decades of personal and national monetary irresponsibility, we grasp for another quick but temporary fix. Our monetary drug dealer, the Federal Reserve, mans the monetary pump. Our financial system is given another hit of monetary crack cocaine—adding to our trillions of dollars in unfunded government liabilities, or creating billions of dollars and expanding the U.S. money supply. The result, inflation, more and more dollars chasing the same amount of goods and services.

Eventually the natural law of economics will overrule political decree—regardless the party in control. And then?

"To live beyond our means today is to live below them tomorrow." ____ Dr. Hans Sennholz, Debts and Deficits, 1987

It is not too late—yet. But we need to consider our ways. Less than four decades ago America's "spend your way to prosperity" policy of the 1960s and 1970s ended in double digit inflation.

In 1970, the Nixon administration declared the U.S. dollar abroad no longer redeemable in gold. After all, claimed media and political pundits, "The dollar is as good as gold." But it wasn’t. The dollar's value at home and abroad plunged. Gold prices soared and worldwide inflation accelerated.

To restore faith in the dollar, we needed major financial surgery. Instead cosmetics were used.

The Nixon administration did what Republicans do not do, impose wage and price controls. Controls that do not and did not work. The problem, not higher wages nor higher prices. That was the result. The problem, more and more US dollars chasing the same amount of goods and services—government inflating the money supply.

The financial debacle intensified. The politicians became sillier. None more so than President Ford when he declared war on inflation. His ammunition? He suggested everyone wear WIN buttons (Whip Inflation Now). Ford went out and Carter came in. President Carter’s answer, "tight money" talk.

As we said, the natural law of economics eventually overrules political decrees. As it did Nixon’s failed price controls, Ford’s silly WIN buttons, and Carter’s "tight money" talk. As Carter talked, we flooded the world with U.S. dollars. International banks were reluctant to accept more. The U.S. faced soaring double digit interest rates and double digit inflation.

Forced to add action to President Carter’s "tight money" talk, the Federal Reserve raised the discount rate—the interest rate charged member banks. Higher rates discouraged further borrowing from the Federal Reserve Central Bank. Member banks borrowed from the private sector at lower interest rates in order to pay off loans owed to the Federal Reserve. Dollars flowed out of the world financial system into the Federal Reserve. But not in time for President Carter. Carter went out and Reagan came in.

As President Reagan took office, the massive outflow of dollars overseas stopped. The dollar recovered. Foreign demand for the dollar increased as the need to pay off international loans grew. A stronger dollar abroad, lower oil prices at home, and massive importation of cheap foreign goods all helped to curb domestic price increases. In the summer of 1982, the U.S. economy was in a recession, unemployment the highest rate since the Great Depression—pain.

The Federal Reserve released the tight-money brake and stomped on the easy-credit gas pedal. At the end of 1982, financial institutions appeared strong. The great bull market for stocks started.

Wave after wave of optimism swept over the stock market. Investors fed by illusions of easy money and unstoppable expansion ignored flashing danger signals. Then October 19, 1987, that which was going to go on forever, didn't. Stock market euphoria ended. Without buyers, sell orders piled up. The Dow Jones Industrial Index plummeted 508 points.

Next trading day, another wave of selling swamped the London Stock Exchange. The biggest one-day loss hit the Australian stock market. The Hong Kong market remained closed. Large U.S. securities firms and over-the-counter market makers on the brink of collapse. To the rescue, the lender of last resort, the Federal Reserve.

Waves of optimism swept over stock market investors—real estate investors soon followed. Then 2008, after more than a decade of seeming prosperity, a financial moment of truth.

Housing, stock market, and financial institutions faced a crisis. To avoid the pain of financial self discipline, both Republicans and Democrats pushed the Bush stimulus package—further increasing both federal debt and inflation. And some politicians are asking for a second stimulus or rebate package. Congress and the Federal Reserve’s housing real-estate bailouts have already added more than one trillion dollars in additional unfunded government liabilities. Saving us, hopefully, again from a much needed but painful correction. Like crack cocaine, however, each comedown takes a bigger fix to get high, and more often.

Lasting wealth for all comes from hope, ideas, inventions, and hard work—not from inflated dollars, government bailouts, and even more debt.

The good news, America’s economy is still strong. Will it remain strong? I pray so. We want God’s best for our family, friends, and Nation. That, however, cannot be built on vote buying political promises and voter desires based on secular values of "Reward without risk, wealth without work." We need moral restoration.

Ours is still the land of opportunity. To preserve that opportunity and renew hope for a better tomorrow we need to consider our ways.

Now therefore thus saith the LORD of hosts; Consider your ways. Ye have sown much, and bring in little; ye eat, but ye have not enough; ye drink, but ye are not filled with drink; ye clothe you, but there is none warm; and he that earneth wages earneth wages to put it into a bag with holes. Ye looked for much, and, lo it came to little; and when ye brought it home, I did blow upon it. Why? saith the LORD of hosts. Because of mine house that is waste, and ye run every man unto his own house. _____ Haggai 1:5,6,9


Be Informed Be Involved _________ Michael E. Odell

To help initiate right political change, go to Blog Archive May11, 2008, "But What Can I Do?"

For Other Posts by Michael E.Odell —click on "Blog Archive" at upper right
07-02-08 Faith Based In Whom
06-13-08 Vote for Change?
05-19-08 Poverty & Envy or Hope & Prosperity
05-11-08 But What Can I Do? Christians Should Not Be In Politics
04-11-08 Sex, Debt, Drugs - America's Epidemic & New York’s Governor
03-28-08 Rare Coin Investments 101 & Choosing A Dealer
03-20-08 Gold Mining Stock Investing 101 - Booms & Busts
03-15-08 Gold Coin Investing 101
03-15-08 Investment 101 - only safe way to double your money
03-03-08 Real Men or Girly Men
02-29-08 A Cup of Hemlock for Washington State
02-13-08 Death & Suicide Initiative 119 Are Back
02-12-08 Thorns or Roses - The Choice Is Ours
02-12-08 Recession & Inflation - Government the Problem
12-08-07 A Hamburger Today & Pay Tomorrow