Take Your Pick: Default or Hyperinflation

ClashDaily.com ^ | October 1, 2013 | G.C. Mandrake

[Kaslin]

Here’s a fairy tale for you. Like Dorothy and her friends, the American people have made the long, desperate trip and are counting on the Great and Powerful Oz to fix things for them. And like the Scarecrow, when we got there, we got screwed. If you remember, the Scarecrow wanted brains, and the man behind the curtain couldn’t deliver but instead said, “by virtue of the authority invested in me by the Universitas Committee E Pluribus Unum, I hereby confer upon you”… paper! He gave the poor guy a piece of paper. And just like the Fed, the wizard left them stranded as he flew off in a hot air balloon (think mortgage bubble) and couldn’t come back to save them because, “I can’t, I don’t know how it works.” And like the Great and Powerful Oz, Fed wizard Ben Bernanke is probably “a very good man…just a very bad wizard.” Or perhaps the problem is actually with our current monetary concept, “I’m afraid it’s true, there’s no other wizard except me.”

Luckily and with a little help, Dorothy realized that she didn’t need the balloon ride or a wizard to get things back to normal, “you don’t need to be helped any longer, you’ve always had the power…”

And for us, what is that power? That power is “We the People” as expressed through our Congress.

But that poses another problem. That assumes the Congress is willing to click their heels and get to work. I am worried that, given their history of avoiding making tough decisions so as to not look bad, we may be in trouble. According to a number of economists (the ones that don’t follow the hot air balloon philosophy) we may be too late. The perfect storm is already here. The economy is at its worst and another “war” looms. If you want to risk looking bad as a politician, just try tackling those issues – especially if it involves cutting anything.

Congress gave us a glimmer of hope after the House voted to audit the Fed, and the Senate increased the co-sponsors (34 at last count) for their version of the bill recently. On the other hand, were the results of a less publicized vote taken late at night on Friday September 21^st. Senator Rand Paul presented a bill to make any foreign aid to Libya, Egypt, and Pakistan contingent upon certain criteria (like protecting our embassies, releasing the doctor who gave us Bin Laden…). The idea was to at least show the world there would no longer be unlimited foreign aid to countries that were not clear allies. The original speech is full of detailed arguments, but this video provides a short synopsis.

Senator Paul knew the bill would fail because the Senate wasn’t willing to confront the two most controversial problems we face – unlimited spending and questionable military entanglements.

“I will probably lose this vote, but if you ask your friends. If you go home and ask your friends should we be sending money to countries that disrespect us, that burn our flag, I think you will find 80 percent to 90 percent of the American people wouldn’t send another penny…That may be why Congress has about a 10 percent approval rating.”

After John Kerry and John McCain teamed-up to argue for continued unlimited aid, the vote was taken and only Senators DeMint, Grassley, Shelby, Toomey, Moran, Lee, Roberts, Risch and Crapo joined with Paul. The vote failed 81 to 10.

Do we really believe Congress will tackle the difficult issues when it comes to debt and military spending?

If you listen to economists like Peter Schiff, Congress no longer has the luxury of kicking the can down the road. He recently delivered a chilling speech at the Mises Circle in Manhattan. “The Fiscal Cliff: How to Spot the Edge” is an easy-to-follow wake-up call about the severity of our economic crisis. His conclusion was that the Fed has become trapped and we are now faced with two options – default on our debt or hyperinflation (click here for the video). He also contends that the solution is to default on the debt before it gets worse. That means doing what had been needed all along – making dramatic cuts in everything. Because no politician wants to face that, then we are at the mercy of inevitable hyperinflation and a worse default. When that happens, that opens the door to incorrectly blame capitalism and invites more government control, regulation, and loss of freedom or worse.

So why is it that politicians from both sides have not addressed the devaluing of the dollar by the Central Bank system (Fed) over the years? In “Twin Demons,” Llewellyn H. Rockwell Jr. explains how this works. The answer is that the Central Bank system is government’s best friend and allows governments to spend money they don’t have, particularly for war. War and debt spending go hand in hand. And once the war is over, the spending continues for social programs. The Central Bank system is confusing to the average citizen and thus allows the government to expand.

“Creating money out of thin air… is preferable for governments, since the process by which the political class siphons resources from society via inflation is far less direct and obvious than in the cases of taxation and borrowing.”

He advocates for a “separation of money and state,” not unlike the pre-fed hard-money Jacksonian monetary theorists of the 1830s who coined the phrase “separation of bank and state.”

So if economists like Schiff and Rockwell are correct, what happens when the Congress actually audits the Fed and brings the Central Bank issues to the forefront of the public debate? How will they handle the decision to either dramatically balance the budget, default on the debt, or risk hyper-inflation? And why would they even tackle this problem openly? As it is now, the Fed is the mysterious man behind the curtain and all monetary evils can be blamed on him.

[Pearls Before Swine]

Default is soooo much better than hyperinflation. Default would likely cause a mega-credit deflation and a new Great Depression. I’d take that any day over what happened in Weimar Germany. Read about their hyperinflation—instead of their economy and society being devastated, it was completely nuked.

We could get both. In a hyperinflationary depression, the government would first try to inflate its way out of its debt, and then eventually have to give up. It would be god awful, and I don’t think it’s an out of the question possibility.

All it takes is short term thinking on the part of our politicians and bankers until events overwhelm them.

[VerySadAmerican]

Dorothy hooked up with three men she didn’t know and took off for a place unknown to get someone to help her out of the situation she put herself in. Sounds like a democrat.

[willywill]

“Congress gave us a glimmer of hope after the House voted to audit the Fed”

you can’t “really” audit the fed. you can have some phony go thru the motions. the fed is controlled at levels that are not subject to any law.
the question you need to ask is “why wouldn’t it be”.
you think people like Michael Bloomberg, George soros, etc are just sitting around letting the stupid great unwashed rule themselves? look at the disdain that Bloomberg has for the masses, plus he, and the other billionares, were brought up to learn that the Christian majority should never hold power again.

[Toddsterpatriot]

Gold retains its value either way.

Right! Because $800 in 1980 was the same as $255 in 1999.

[Stentor]

Just saw the 3D version of the Wizard. That Scarecrow was packing heat.

[Vermont Lt]

We were in a deflationary spiral then?

I must have missed that one when my interest rates on my first home hit 15%.

[G Larry]

“or”???

They thrive quite compatibly together.

Why does the author say “or”?

[Toddsterpatriot]

We were in a deflationary spiral then?

If you consider the crashing price of that metal to be a deflationary spiral, then sure.

If you were claiming the purchasing power of that ounce of gold was equivalent from 1980 to 1999, you're off by a bit.

[dalereed]

“U.S. Default = WWIII”

BRING IT ON!!!!!

[Vermont Lt]

Ah, no. A deflationary spiral is an economy, not a single asset.

I keep forgetting how narrow minded people around here just to win an argument.

[Toddsterpatriot]

Ah, no. A deflationary spiral is an economy, not a single asset.

That's a relief. Glad you could answer your own question.

[old republic]

U.S. Default = WWIII Hyperinflation = Civil Unrest

Hyperinflation in the Weimar Republic led to civil unrest and ultimately to WWII anyway. Perhaps the same cycle could repeat itself in the future.

You see, under a default the people who lent money to the US government get wiped out.

But under hyperinflation, everyone who holds US dollars could get wiped out whether they lent to the government or not. Paying back creditors with hyper-inflated dollars is essentially the same thing as a default and will anger both foreign creditors and domestic creditors anyway:

Thus although, a Default could theoretically lead to unrest and world war III, the same is true of hyperinflation. The real question is do you want lots of angry rich people/investors and foreign creditors or do you want everyone who holds dollars to be angry including the creditors?

[grania]

Renunciation of the debt...

Why not renounce the debt owed to the Federal Reserve? The feds digitize some more money, and say it's bonds owed to the Federal Reserve? I'm sure those mysterious shareholders will still be multi-billionaires without it.

[grania]

Value is critical

That is why if one believes hyperinflation will happen it makes sense to get those long term purchases done before it happens. Car, appliances, new roof on the house, etc. The money's not collecting interest in the bank, and who totally trusts the banks with savings if things go crazy?

[Jim Noble]

Why not renounce the debt owed to the Federal Reserve?

Yes, that will happen eventually.

[Jim Noble]

Hyperinflation in the Weimar Republic led to civil unrest and ultimately to WWII anyway. Perhaps the same cycle could repeat itself in the future.

Perhaps, but Weimar in 1923 was still a conquered nation with no control over fiscal policy.

That is far from the situation that the US confronts.

[Toddsterpatriot]

Why not renounce the debt owed to the Federal Reserve?

Why?

I'm sure those mysterious shareholders will still be multi-billionaires without it.

Mysterious shareholders?