Fiat economies - long - part 1

[GuyFawkes]

Two long quotes

A "Fiat" economy is one where a type of money is given legal status by an order or decree from the state / king / emperor / whatever, it is not "I promise to pay the bearer on demand" gold backed (or other recognised commodity backed) currency.

Fiat money is in effect a rubber cheque, if you write me a cheque for products, goods or service, the understanding is that that cheque is backed up by money in your account, if the deal is that I am not expected to cash your cheque, but instead pass it on to someone else who gives me goods and services that I want, then your cheque is not backed up by money in your account, but by the belief that there is money in your account, if anyone ever chooses to cash it.

If you live around town like this you can live very well, until the first person decides to cash your cheque, at which point there will be a run on the bank, your best option may be to kill that person and dispose of the body.

This is IMPORTANT STUFF because peak oil and global warming and eco disaster and global terrorism EVERYTHING ELSE does not matter one damn if at the end of the day your cheques that you write, or the fiat currency that you use, is percieved as being worthless, not worth nothing, but literally worth less.

At that point you can still for example buy my services maintaining and repairing your lister, we just have to sit down and negotiate what you have to trade, barter in it's most basic terms, and you are shit out of luck if you don't have anything that I want or need. You are doubly shit out of luck if you think armed men are going to back you up, because if I think your cheques are worth-less, so will they, and if all they have is your worth-less cheques, they can't buy food or ammunition.

It doesn't matter if the midwest is a dustbowl or florida dissapears under rising seas, if you have worth-less cheques your problems will be more immediate and longer term... remember, my mother is old enough to remember times when workers were paid their weekly wage in wheelbarrow fulls of worth-less fiat currency cash, and their wives scrambled to take this cash to the shopkeepers before the workers shift ended, because they money was worth-less a few hours later thanks to inflation, and the only cure for that was annexing the sudetenland and the start of WW2.

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Before the US House of Representatives, February 15, 2006

A hundred years ago it was called “dollar diplomacy.” After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony.” But after all these many years of great success, our dollar dominance is coming to an end.

It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.

First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.

Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn’t long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin – always hoping their subjects wouldn’t discover the fraud. But the people always did, and they strenuously objected.

This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the circuses and bread. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well.

That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations – those with powerful armies and gold – strived only for empire and easy fortunes to support welfare at home, those nations failed.

Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: “He who prints the money makes the rules” – at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.

Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people – just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.

The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one’s actions is rejected.

When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules – rules no longer written by those who ran the now defunct printing press.

“Dollar Diplomacy,” a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox, was designed to enhance U.S. commercial investments in Latin America and the Far East. McKinley concocted a war against Spain in 1898, and (Teddy) Roosevelt’s corollary to the Monroe Doctrine preceded Taft’s aggressive approach to using the U.S. dollar and diplomatic influence to secure U.S. investments abroad. This earned the popular title of “Dollar Diplomacy.” The significance of Roosevelt’s change was that our intervention now could be justified by the mere “appearance” that a country of interest to us was politically or fiscally vulnerable to European control. Not only did we claim a right, but even an official U.S. government “obligation” to protect our commercial interests from Europeans.

This new policy came on the heels of the “gunboat” diplomacy of the late 19th century, and it meant we could buy influence before resorting to the threat of force. By the time the “dollar diplomacy” of William Howard Taft was clearly articulated, the seeds of American empire were planted. And they were destined to grow in the fertile political soil of a country that lost its love and respect for the republic bequeathed to us by the authors of the Constitution. And indeed they did. It wasn’t too long before dollar “diplomacy” became dollar “hegemony” in the second half of the 20th century.

This transition only could have occurred with a dramatic change in monetary policy and the nature of the dollar itself.

Congress created the Federal Reserve System in 1913. Between then and 1971 the principle of sound money was systematically undermined. Between 1913 and 1971, the Federal Reserve found it much easier to expand the money supply at will for financing war or manipulating the economy with little resistance from Congress – while benefiting the special interests that influence government.

Dollar dominance got a huge boost after World War II. We were spared the destruction that so many other nations suffered, and our coffers were filled with the world’s gold. But the world chose not to return to the discipline of the gold standard, and the politicians applauded. Printing money to pay the bills was a lot more popular than taxing or restraining unnecessary spending. In spite of the short-term benefits, imbalances were institutionalized for decades to come.

The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world’s reserve currency. The dollar was said to be “as good as gold,” and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.

The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question – until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.

It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it – not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.

Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.

This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo–gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.

During the 1970s the dollar nearly collapsed, as oil prices surged and gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were required to rescue the system. The pressure on the dollar in the 1970s, in spite of the benefits accrued to it, reflected reckless budget deficits and monetary inflation during the 1960s. The markets were not fooled by LBJ’s claim that we could afford both “guns and butter.”

Once again the dollar was rescued, and this ushered in the age of true dollar hegemony lasting from the early 1980s to the present. With tremendous cooperation coming from the central banks and international commercial banks, the dollar was accepted as if it were gold.

[GuyFawkes]

Fed Chair Alan Greenspan, on several occasions before the House Banking Committee, answered my challenges to him about his previously held favorable views on gold by claiming that he and other central bankers had gotten paper money – i.e. the dollar system – to respond as if it were gold. Each time I strongly disagreed, and pointed out that if they had achieved such a feat they would have defied centuries of economic history regarding the need for money to be something of real value. He smugly and confidently concurred with this.

In recent years central banks and various financial institutions, all with vested interests in maintaining a workable fiat dollar standard, were not secretive about selling and loaning large amounts of gold to the market even while decreasing gold prices raised serious questions about the wisdom of such a policy. They never admitted to gold price fixing, but the evidence is abundant that they believed if the gold price fell it would convey a sense of confidence to the market, confidence that they indeed had achieved amazing success in turning paper into gold.

Increasing gold prices historically are viewed as an indicator of distrust in paper currency. This recent effort was not a whole lot different than the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt to convince the world the dollar was sound and as good as gold. Even during the Depression, one of Roosevelt’s first acts was to remove free market gold pricing as an indication of a flawed monetary system by making it illegal for American citizens to own gold. Economic law eventually limited that effort, as it did in the early 1970s when our Treasury and the IMF tried to fix the price of gold by dumping tons into the market to dampen the enthusiasm of those seeking a safe haven for a falling dollar after gold ownership was re-legalized.

Once again the effort between 1980 and 2000 to fool the market as to the true value of the dollar proved unsuccessful. In the past 5 years the dollar has been devalued in terms of gold by more than 50%. You just can’t fool all the people all the time, even with the power of the mighty printing press and money creating system of the Federal Reserve.

Even with all the shortcomings of the fiat monetary system, dollar influence thrived. The results seemed beneficial, but gross distortions built into the system remained. And true to form, Washington politicians are only too anxious to solve the problems cropping up with window dressing, while failing to understand and deal with the underlying flawed policy. Protectionism, fixing exchange rates, punitive tariffs, politically motivated sanctions, corporate subsidies, international trade management, price controls, interest rate and wage controls, super-nationalist sentiments, threats of force, and even war are resorted to – all to solve the problems artificially created by deeply flawed monetary and economic systems.

In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that’s the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.

It sounds like a great deal for everyone, except the time will come when our dollars – due to their depreciation – will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.

The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.

The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.

Price inflation is raising its ugly head, and the NASDAQ bubble – generated by easy money – has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979–1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.

Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.

Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged – as it already has been.

In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein – though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.

It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.

There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.

In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.

After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.

It’s become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.

Now, a new attempt is being made against the petrodollar system. Iran, another member of the “axis of evil,” has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.

Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn’t do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn’t seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there’s little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn’t stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she’s made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.

It’s not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein’s connection to 9/11, were false. The dollar’s importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel’s influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting “our” oil supplies has influenced our Middle East policy for decades.

But the truth is that paying the bills for this aggressive intervention is impossible the old-fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That’s not so today. Now, more than ever, the dollar hegemony – it’s dominance as the world reserve currency – is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.

For the most part the true victims aren’t aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the “tax” that pays the bills for our military adventures. That is, until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world’s reserve currency.

It is an unbelievable benefit to us to import valuable goods and export depreciating dollars. The exporting countries have become addicted to our purchases for their economic growth. This dependency makes them allies in continuing the fraud, and their participation keeps the dollar’s value artificially high. If this system were workable long term, American citizens would never have to work again. We too could enjoy “bread and circuses” just as the Romans did, but their gold finally ran out and the inability of Rome to continue to plunder conquered nations brought an end to her empire.

The same thing will happen to us if we don’t change our ways. Though we don’t occupy foreign countries to directly plunder, we nevertheless have spread our troops across 130 nations of the world. Our intense effort to spread our power in the oil-rich Middle East is not a coincidence. But unlike the old days, we don’t declare direct ownership of the natural resources – we just insist that we can buy what we want and pay for it with our paper money. Any country that challenges our authority does so at great risk.

Once again Congress has bought into the war propaganda against Iran, just as it did against Iraq. Arguments are now made for attacking Iran economically, and militarily if necessary. These arguments are all based on the same false reasons given for the ill-fated and costly occupation of Iraq.

Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods. Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the “backing” of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today’s “gold.” This is why countries that challenge the system – like Iraq, Iran and Venezuela – become targets of our plans for regime change.

Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become.

But real threats come from our political adversaries who are incapable of confronting us militarily, yet are not bashful about confronting us economically. That’s why we see the new challenge from Iran being taken so seriously. The urgent arguments about Iran posing a military threat to the security of the United States are no more plausible than the false charges levied against Iraq. Yet there is no effort to resist this march to confrontation by those who grandstand for political reasons against the Iraq war.

It seems that the people and Congress are easily persuaded by the jingoism of the preemptive war promoters. It’s only after the cost in human life and dollars are tallied up that the people object to unwise militarism.

The strange thing is that the failure in Iraq is now apparent to a large majority of American people, yet they and Congress are acquiescing to the call for a needless and dangerous confrontation with Iran.

But then again, our failure to find Osama bin Laden and destroy his network did not dissuade us from taking on the Iraqis in a war totally unrelated to 9/11.

Concern for pricing oil only in dollars helps explain our willingness to drop everything and teach Saddam Hussein a lesson for his defiance in demanding Euros for oil.

And once again there’s this urgent call for sanctions and threats of force against Iran at the precise time Iran is opening a new oil exchange with all transactions in Euros.

Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.

The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better.

February 17, 2006

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[GuyFawkes]

Fiat Money Inflation In The U.S.
(Including Gold & Silver Outlook.)
Part I
Chris G. Waltzek
© October 27, 2005

" Thus came a collapse in manufacturing and commerce, just as it had come previously in France: just as it came at various periods in Austria, Russia, America, and in all countries where men have tried to build up prosperity on irredeemable paper (worthless money.)" from: Fiat Money Inflation In France.

In the late eighteenth century, the French Revolution lead to deteriorating socio-economic conditions throughout the nation. The money supply climbed to staggering levels, resulting in a financial crisis of epic proportions. In fact, excess fiat currency exacerbated tenuous living conditions, which in turn catapulted living costs to unimaginable heights. Similarly, rising energy, commodities and precious metals prices indicates the return of domestic inflation. This article compares excerpts from the classic financial text: Fiat Money Inflation In France, with the current domestic economy in order to demonstrate conclusively that gold and silver backed money remains the only suitable remedy for national inflation.

BACK TO THE FIAT

" To cure a disease temporary in its character, a corrosive poison was administered (Printing Fiat Money), which ate out the vitals of French prosperity." from: Fiat Money Inflation In France.

The nation of France experienced two monetary travesties in the 18th century. The first national experiment with fiat money is remembered as, John Law's, Mississippi Scheme. John Law's infamous machinations promoted the distribution of paper money in 1719, approximately 70 years before the French Revolution. Until that point, the nation relied exclusively upon gold and silver coinage. Law's experiment with paper money mirrored the result of all fiat currencies throughout history: complete economic collapse and financial ruin.

Thus, by the year 1789, the French populace was acquainted with the perils of fiat money. Fiat Money Inflation in France probes the latter experiment with unbacked paper money during the Great French Revolution. The government of the newly emancipated masses exceeded available treasury funds. As a result, politicians printed mountains of unbacked money, which flooded the nation like the spent carcasses of the 17 year cicada. The second monetary debacle was as detrimental to national welfare as the first:

" New issues of paper were then clamored for as more drams are demanded by a drunkard...The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity. Throughout France there came temporary good feeling. The nation was becoming inebriated with paper money. The good feeling was that of a drunkard just after his draught; and it is to be noted as a simple historical fact, corresponding to a physiological fact, that, as draughts of paper money came faster the successive periods of good feeling grew shorter... " from: Fiat Money Inflation In France.

Thus, by 1790, the ensuing monetary disaster lead to morose living conditions and social upheaval. In fact, merely five years elapsed between the onset of inflation and the inevitable economic calamity. During that brief period, many essential goods increased in price by more than one hundred fold. For instance, a bushel of flour cost approximately 40 cents in 1790. By 1795, the same quantity of flour rose by ten fold to $45. Similarly, a small cartload of lumber rocketed higher from $4 to $500, an astronomical increase in excess of 1,000%.

" Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed..." from: Fiat Money Inflation In France.

Consequently, inflation statistics from the 18th century indicate difficult times ahead for the domestic economy. For instance, a typical sandwich costs $3, at present inflation levels. Yet, as inflation rates approach the hyper-inflation figure of that period, price increases by 1000%. Few domestic families could afford such prices. In fact, $20 per gallon of gasoline, $15 per loaf bread, $35 per gallon of milk and a $200 meal for a family of 5 is possible. If the previous statistics seem implausible, hyper-inflation figures from the past show that they are not only possible but relatively conservative.

IRRATIONAL EXPANSION

" Early in the year 1789 the French nation found itself in deep financial embarrassment: there was a heavy debt and a serious deficit." from: Fiat Money Inflation In France.

For decades, careless Federal Reserve monetary expansion has over-stimulated the economy. As a result, mountains of unbacked paper money, excessive debt and incalculable deficits jeopardize national solvency. Protective Federal Reserve policies secured economic growth at the expense of inflation. Records indicate that economic collapse is the inevitable result of such currency manipulations.

Indeed, the Monetarists at the helm of the Federal Reserve insist that increased liquidity is required to rejuvenate national conditions. Although economic stability is the intent of such monetary policies, excessive infusions create deleterious side effects. The insurmountable surplus of fiat money has caused disequilibrium within the economy. The unending flow of dollars has forced the economy toward a precipice. The dollar is held hostage to monetary decision makers, as was the French currency of the late 1890s:

" La Rochefoucauld proposed to issue an address to the people showing the goodness of the currency and the absurdity of preferring coin. The address was unanimously voted. As well might they have attempted to show that a beverage made by mixing a quart of wine and two quarts of water would possess all the exhilarating quality of the original, undiluted liquid." from: Fiat Money Inflation In France.

Eventually the dollar bubble will burst as excessive monetary liquidity further threatens economic solvency. In order to better illustrate the danger of unregulated liquidity one can compare the economy to an expanding rubber balloon. For instance, each time the balloon (economy) sags, more air (money creation) is introduced. The balloon remains intact until it expands beyond the bursting point. Following decades of monetary stimulus, the economy cannot sustain its present, over-inflated state.

Indeed, until 2005, monetary growth climbed sharply following the September 11th, 2001 terrorist attack, a fateful episode in American history. The Federal Reserve cushioned the economy from a stock and bond market crash and decrease the likelihood of panic by increasing liquidity. Although the short-term affect was market stabilization, the long-run result is damaging inflation and currency collapse. Thus, Irrational expansion is eroding confidence in the dollar as the global reserve currency.

Thus, declining dollar value in 2003-2004, relative to global currencies, temporarily boosted sales and enhanced the competitiveness of many U.S. manufacturers. Yet, dollar erosion leads to hyper-inflation. At first, runaway inflation appears to offer an economic advantage to manufacturers. Price hikes for manufactured goods are implemented without a proportionate increase in wages paid. However, the scenario changes abruptly as domestic consumers curtail purchases for manufactured items due to lower wages earned. For instance, during the 1970's, food, gas, clothing and energy prices advanced faster than real wages. During inflationary periods, wages tend to lag far behind price hikes. Higher prices without an incremental rise in personal income places considerable pressure upon fixed income as well as lower to middle income families:

" Strange as it might seem to those who have not watched the same causes at work at a previous period in France and at various times in other countries, while every issue of paper money really made matters worse, a superstition gained ground among the people at large that, if only paper money were issued and were more cunningly handled the poor would be made rich. Henceforth, all opposition was futile."

From: Fiat Money Inflation In France.

[GuyFawkes]

Consequently, scoffers insist that a domestic inflationary disaster is unrealistic. Pundits tout fiat money's important qualities: its lightweight, easily stored and transported. Yet gold and silver backed paper money has the identical qualities. The unfolding monetary dilemma stems from the intangible aspects of paper money, not the tangible. Paper bills are not problematic, when each bill is properly backed. However, the dollar has no gold or silver support and thus the entire monetary system is in jeopardy:

"Various bad signs began to appear. Immediately after each new issue (money growth) came a marked depreciation; curious it is to note the general reluctance to assign the right reason...New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt... The decline in the purchasing power of paper money was in obedience to the simplest laws in economics...(Supply and Demand.)" from: Fiat Money Inflation In France.

Moreover, U.S. dollar gold backing was abolished in 1971. The dollars decoupling from gold and silver ushered in the Great American Bubble. Since that point, paper assets have flourished beyond the dreams of avarice. The resulting inflationary boom diverted hyper-inflated dollars into alternative routes. Firstly, funds flowed into precious metals beginning in 1971, which culminated in 1980 with an incredible peak in gold and silver prices. Next, the stock market expanded from 1980 until 1999, an astounding 20 year period of growth. The final inflation peak culminated in the U.S. real-estate and bond market bubbles and a the current bull market in gold and silver assets.

Clearly, the chart above illustrates the degree that Federal Reserve policies affected the 1990's stock market boom. The 1980's yielded similarly impressive stock market results. Expansionary policies distorted the equilibrium within the national supply and demand for money. Consequently, the stock and bond market, real estate and dollar bubbles resulted. A euphoric domestic economy roared forward for two decades, fueled by loose monetary restraints.

However, Isaac Newton's third law of motion holds true in monetary concerns as well: for every action there is an equal and opposite reaction. The temptation to continually print dollars for 2 decades has become a self perpetuating inflationary cycle. The peak of the artificial economic boom has given way to an inflationary disaster. Clearly, unsustainable money growth is steering the nation toward, a Fiat Money Inflation in France style, economic disaster:

"...doubling the quantity of money or substitutes for money in a nation simply increases prices, disturbs values, alarms capital, diminishes legitimate enterprise, and so decreases the demand both for products and for labor." from: Fiat Money Inflation In France.

Indeed, declining dollar value in 2003-2004, relative to global currencies, temporarily boosted sales and enhanced the competitiveness of many U.S. manufacturers. Yet, dollar erosion leads to hyper-inflation. At first, runaway inflation appears to offer an economic advantage to manufacturers. Price hikes for manufactured goods are implemented without a proportionate increase in wages paid. However, the scenario changes abruptly as domestic consumers curtail purchases for manufactured items due to lower wages earned. For instance, during the 1970's food, gas, clothing and energy prices advanced faster than real wages. During inflationary periods, wages tend to lag far behind price hikes. Higher prices without an incremental rise in personal income places considerable pressure upon fixed income as well as lower to middle income families.

"PONZI" DOLLARS

" Still another troublesome fact began now to appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant. Whenever a great quantity of paper money is suddenly issued we invariably see a rapid increase of trade." from: Fiat Money Inflation In France.

Unrestricted monetary expansion has resulted in the worlds greatest Ponzi scheme. Ponzi schemes guarantee exorbitant returns to each subsequent investor. However, the profits used to reward the original participants are merely the entry fees of the final group of unwitting investors. As a Ponzi scheme progresses, it becomes apparent that the last group of investors will receive zero profits as well as lose their initial investment.

Similarly, the dollar Ponzi scheme was financed by well meaning investors worldwide. Considered as safe as gold, U.S. bonds were exported to satiate global demand for secure interest payments. However, the surplus U.S. bonds has diluted investor demand. The Federal Reserve must now raise interest rates to combat inflation, which in turn decreases demand for government bonds.

Yet, bond values are inversely related with interest rates. In fact, merely the threat of higher rates worries bond investors. Climbing interest rates reduces the value of existing bonds. Thus, in order to decrease exposure to "Ponzi" dollars, investors will lower portfolio exposure to U.S. bond holdings and add a competing asset class: gold and silver related investments.

TREASURY BONDS: FIAT IOU

As the government increases debt to fund domestic projects, the national debt continues to reach lofty peaks. For decades, much of U.S. debt has been shipped abroad, away from North America. Thus inflation has remained relatively tame. Yet, as global bond holders collectively liquidate debt positions, dollars will flood back into the U.S. creating an instantaneous hyper-inflationary scenario. Several economic events could trigger investors to sell U.S. debt instruments:

1) Renewed dollar deflation.
2) Economic weakness/recession.
3) Climbing interest rates.
4) Unregulated, interest rate sensitive derivatives.

1) Renewed dollar deflation: In recent years, most dollars denominated assets have lost considerable value. Although the dollar exhibited considerable strength in 2005, the multi-year downward trend against world currencies is likely to resume. As the dollar continues to wane, U.S. bonds will become less attractive. Eventually, demand for U.S. debt will diminish and market liquidity will evaporate. The deluge of dollars returning to domestic shores will threaten economic stability.

2) Economic weakness/recession: Ironically, following decades of U.S. manufacturing dominance, the nation now consumes more than it produces. In fact, the ravenous appetite for globally manufactured goods encourages demand for U.S. bonds. Yet a significant recession or depression would drastically decrease the spending habits of the American public. The resulting loss of demand for imported goods would decrease foreign demand for new bond issues. If American demand for globally manufactured goods declines, U.S. debt will lose its luster and an economic tailspin will commence.

3) Climbing interest rates: Following decades of decline, interest rates reached the lowest level in forty years. Low rates were fomented, in part, by the loose monetary policies of central banks. As inflation becomes apparent to the general public, the Federal Reserve will be forced to raise interest rates to far higher levels. In fact, the Federal Reserve has increased rates at several consecutive meetings. Bonds eventually lose value in an environment of escalating rates. Thus, U.S. bond sales will force a staggering supply of dollars back into the American economy - leading to hyper-inflation.

4) Rate Sensitive Derivatives: Derivatives are sophisticated financial instruments used to offset market risk, based upon one or more market conditions such as interest rates. Climbing rates negatively impact interest rate sensitive derivatives. Unregulated derivatives mask hidden and oftentimes unlimited risks.

===========================

discuss

(sorry had to spread it over 4 posts, 20000 character limit on this forum software_

[GuyFawkes]

THE DERIVATIVE DILEMMA

"But if this first expedient shows how naturally a "fiat" money system runs into despotism, the next is no less instructive in showing how easily it becomes repudiation and dishonor." from: Fiat Money Inflation In France.

Few analysts claim to grasp the full extent of the danger posed by unregulated derivatives. Yet, an estimated 200 trillion dollars in derivatives threaten the global economy. Although quantifying the precise impact of higher rates on derivatives is difficult, it is certain that the potential for financial chaos is substantial. Warren Buffett, the worlds 2nd richest man and arguably the worlds most successful investor, refers to derivatives as: "Weapons of mass financial destruction." Many of his contemporaries concur that a derivative related quagmire threatens the global financial system.

Moreover, the recent bankruptcy of Refco, the nations largest derivatives clearing firm, suggests that a derivatives default looms ahead for the global markets. Within less than 2 weeks of the announcement of Refco's woes, its share price plummeted from near $30 to less than one dollar. When compared with the Enron share price plunge of several months, the rate of Refco's demise is particularly alarming. Should rates suddenly spike higher, the resulting derivatives implosion could trigger an abrupt financial meltdown and culminate in a global financial panic.

Indeed, the Long-Term Capital Management (LTCM) debacle of the late 1990's illustrates the significance of the more recent Refco derivatives meltdown. The LTCM hedge fund was managed by the top financial minds of the decade. The staff included 2 Nobel prize winners, renowned for designing the Black-Scholes options pricing model. Although the trading systems were designed by financial wizards, the LTCM models failed miserably with one fateful derivatives trade. In order to mitigate risk to the national economy, the Federal Reserve allocated over $4 billion to relieve debt burdens. Although economic collapse was averted, LTCM never fully recovered and closed its doors within less than three years of the initial meltdown.

Furthermore, unregulated derivatives threaten many U.S. municipalities and public companies. The Enron debacle is the most glaring example. LTCM lost over $4.5 billion at the crisis peak. Enron eclipsed LTCM's losses with a staggering share price decline in excess of $70 billion as well as billions in loan defaults. Several unsound energy related derivative swaps lead Enron's share price into an unrecoverable spiral. The result was devastating to individuals, companies as well as pension fund investors.

Clearly, unregulated derivatives involve insurmountable risks, oftentimes in excess of the original purchase price. Still, neophytes and uninformed investors alike have been lured by derivatives due to enticing rates of return. Of the staggering $270 trillion global derivatives market, the majority include interest rate exposure (compare the $270 trillion derivative figure with the meager $50 trillion in fiat money in circulation world-wide). Thus an unexpected interest rate surge will create trillions of dollars in market risk. Such derivatives portend tremendous losses for firms, individuals and ultimately the nation as higher rates unfold.

GAMBLING WITH FIAT MONEY

"Out of the speculating and gambling of the inflation period grew luxury, and, out of this, corruption. It grew as naturally as a fungus on a muck heap..." from: Fiat Money Inflation In France.

Speculative financial episodes periodically emerge. In fact, the desire for quick profits where fiat money abounds has created market bubbles without exception, including: The Tulip-Mania, South Sea Bubble, Mississippi Scheme, French Revolution, 1970's gold and silver bull market and the 1990's Technology Stock Boom. The French economy during the Great Revolution is particularly relevant to the current domestic economy. In fact, as socio-economic conditions deteriorated during the French Revolution, a widely diverse section of the populace adopted gambling as a favorite past time. Once the consensus converges into a unanimous belief, a greed induced mania erupts:

"Even worse than this was the breaking down of the morals of the country at large... from the gambling, speculative spirit... From this was developed an even more disgraceful result,--the decay of a true sense of national good faith..." from: Fiat Money Inflation In France.

Similarly, each year millions of Americans enjoy recreational gambling. More than two hundred years have elapsed since the French gambling episode. Yet domestic speculative fever is emerging in a new continent. Scratch and win tickets, lotto, as well as various games of chance are available in most communities. As mountains of inflated currency course through the nations commercial arteries, Internet gambling provides anyone with access to the World Wide Web and a credit card the ability to risk paper capital at a moments notice:

" Says the most brilliant of apologists for French revolutionary statesmanship, "Commerce was dead; betting took its place." from: Fiat Money Inflation In France.

Moreover, prosperous economic and political conditions mask the underlying costs associated with speculation and gaming. For instance, the stock market boom from 1980-2000 created incredible economic growth. The ensuing prosperity marginalized the damaging affects of gambling. In fact, one may argue that the satisfaction gained from occasional gambling is worth the invariable losses incurred.

"The French are naturally thrifty; but, with such masses of money and with such uncertainty as to its future value, the ordinary motives for saving and care diminished, And a loose luxury spread throughout the country. A still worse outgrowth was the increase of speculation and gambling..." from: Fiat Money Inflation In France.

Yet this article demonstrates conclusively that economic conditions have deteriorated sharply in the past few years. As inflation rolls forward, the cost of living will increase much faster than real wages. Deteriorating prospects will leads many job seekers to gaming in an attempt to escape their financial plight. Unfortunately, economic conditions will not solidify as they had following previous economic downturns, so gambling will merely increase suffering, for the most part. Clearly, the losses associated with gambling and speculation will become increasingly debilitating to the public and thus only prudent investments are advised:

"Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion.
from: Fiat Money Inflation In France.

SHIELDING WEALTH FROM INFLATION

Throughout the ages, numerous investors and financial professionals alike, have fallen prey to currency machinations. No society is fully insulated from widely held investment misconceptions. As long as fiat currencies remain in circulation, the fallacy of unbacked paper money will continue to haunt even the most sophisticated of global economies. More than 150 years have elapsed since the last national hyper-inflation dilemma. Thus, the domestic populace has little to no first hand experience to form an educated opinion concerning the unfolding quandary.

Consequently, decades of covertly inflated stock and paper assets have marginalized demand for precious metals. In fact, during the last 25 years, many investors experienced severe declines in gold related investments. Conversely, stocks and bonds were generally ideal investments. Following the quarter century bear market in precious metals, professionals and investors are slow to accept that precious metals are once again the investment du jour.

Moreover, as the roaring economic banshee threatens the populace with runaway living costs, the need for a precious metals standard will become painfully apparent. As climbing prices increase at a parabolic rate, most investors will distrust any form of unbacked fiat money. Individual states, counties and cities will approve legislation for silver and gold backed currencies. Indeed, New Hampshire has current legislation pending for $50 million in silver coinage, click here for the website:

http://www.gencourt.state.nh.us/legislation/2003/HB1342.html

Unfortunately, demographic groups with special needs suffer most from rapidly increasing prices. For instance, many senior citizens rely upon dividends, coupons and social security benefits. Yet all of the previous retirement income sources are jeopardized by hyper-inflation. Not only does inflation marginalize investment returns but the underlying principal as well. While food, housing, health care, insurance and medical prices climb, income will be declining rapidly. This will lead to deteriorating financial positions, particularly for those who need stability most:

"As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor--the daily wages of the laboring class--went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency..." from: Fiat Money Inflation In France.

Consequently, shifting economic conditions create a precarious situation for investor portfolios. Wealth is a storage medium of financial potential energy. When properly maintained, wealth retains its inherent potency and increases in strength. When ignored and left to the whims of howling market forces, wealth loses potential energy and may be destroyed completely. Retaining capital in difficult periods requires diligent attention to primary financial trends.

" This disappearance of specie (gold and silver coins) was the result of a natural law as simple and as sure in its action as gravitation; the superior currency (gold and silver) had been withdrawn because an inferior currency (paper bills) could be used." from: Fiat Money Inflation In France.

Clearly, the decades long trend of monetary expansion has inflated paper assets to lofty heights and artificially depressed precious metals related assets. Complacency regarding paper assets has increased, as well. Few investors comprehend the intrinsically worthless nature of fiat money. Confidence in unbacked paper money is destined to wane as its ability to retain value is further diminished. Thus, the nation is recklessly careening down an inflationary path, similar to 18th century France:

" In speeches, newspapers and pamphlets about this time, we begin to find it declared that, after all, a depreciated currency is a blessing; that gold and silver form an unsatisfactory standard for measuring values." from: Fiat Money Inflation In France.

[GuyFawkes]

CURRENT GOLD, SILVER & GOLD STOCKS OUTLOOK

In 2002-2003, gold and silver completed a 22 year bear market and have followed a steady path higher for 3 consecutive years. The fundamentals are firmly in place to sustain the new bull market for several years into the future. Not since 1980 has the technical outlook for gold, silver and gold stocks been more favorable. In fact, all precious metals related charts support the view that a new bull market in gold and silver is underway.

Furthermore, the gold market has recently broken free from the U.S. dollar, following years of inverse correlation. In fact, gold has been moving higher in tandem with the dollar. As a result, gold is finally accelerating in terms of several major global currencies. Such developments confirm the notion that gold has entered a period of much higher prices. The gold market recently moved above the previous years high point and consolidated at support. Markets often pause on the trek of higher highs and higher lows. Wise investors use such retracements to accumulate positions while lower prices prevail. The following chart was originally published with this article in October 2005, just before the parabolic rise in gold:

Clearly, the break-out in the gold chart above lead to a meteoric rise in prices as seen in the chart below this text. The current question facing gold investors is whether the short-term and medium-term impulse higher is complete. The chart below indicates that a correction will likely follow the near vertical assent. After the gold market consolidation, prices will likely advance to the $600+ in 2006.

Conversely, in October, silver had not yet breached its previous high point, as illustrated in the weekly silver chart below this paragraph. The silver market was firmly entrenched within a broad consolidation or symmetrical triangle pattern. The sideways, choppy market behavior concluded as prices penetrated the upper boundary:

Indeed, as prices moved above the $8-$8.5 resistance level, a furious run to $9.20+ commenced, as forecasted in October. Silver is now testing support as viewed in the graph below. Prices are expected to climb above the weekly high point of 2005 next year. A vigorous move to the 10-$11.5 level is the most likely outcome of the recent upthrust:

During the same period, gold stocks were locked within a similar trading range for more than a year. In fact, the $XAU was still gyrating near the top of a bullish rectangular pattern. By late October, gold stocks completed the final assault upon the upper resistance level:

Gold stocks recoiled from the upper resistance level then rocketed to a new high point above the upper boundary. The old resistance line has now become a potential support level. The $XAU is poised for much higher levels, following a retest of the break-out point.

CONCLUSION

"Henceforward, until the end of this history, capital was quietly taken from labor and locked up in all the ways that financial ingenuity could devise. All that saved thousands of laborers in France from starvation was that they were drafted off into the army and sent to be killed on foreign battlefields."
from: Fiat Money Inflation In France.

All fiat money systems lead to lengthy periods of, social instability, economic distress, and warfare. The resulting inflation reduces living standards to such degree that socio-economic upheaval becomes inevitable. Sadly, the Federal Reserve has chosen to ignore such warnings, that are written upon the tablets of financial history. 18th century France required 40 grueling years of rehabilitation before full economic recovery. Will the U.S. needlessly suffer a similar fate?

Although the world is beginning to reject the U.S. dollar, the nation is not doomed to a hyper-inflationary spiral. In fact, a few central banks are halting gold sales and making precious metal purchases. Since this article was first published, the Russian central bank has announced a brilliant and bold purchase of 50 tons of gold. Many Asian central banks will likely follow its lead.

Thus, fundamental analysis dictates that silver and gold will no longer remain inexpensive compared with the over-inflated dollar. Technical analysis is forecasting precious metals to exceed current prices within the next 12 months. Gold stocks are near the beginning phase of a new bull market. It is not too late for the Federal Reserve as well as American individuals to protect against the coming inflationary maelstrom and insure financial freedom by converting a portion worthless paper money into gold and silver related investments. Rejection of fiat money is destined to return gold and silver to their rightful position as king and queen among currencies.

"At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then...(after 40 years!) came the beginning of a new era of prosperity... " from: Fiat Money Inflation In France.

Endnotes:

1. White, Andrew Dickson, LL.D., Ph.D., D.C.L.
"Fiat Money Inflation in France (How It Came, What It Brought, and How It Ended)" Late President and Professor of History at Cornell University; Sometime United States Minister to Russia and Ambassador to Germany; Author of "A History of the Warfare of Science with Theology. ISBN: 1410205835
http://www.gutenberg.org/dirs/etext04/fiatm10.txt

[GuyFawkes]

Link to project gutemberg free full text download of Fiat money inflation in France

http://onlinebooks.library.upenn.edu/webbin/gutbook/lookup?num=6949

[rpg52]

The question, of course,  is, when will The Shit Hit The Fan (TSHFT)?  I am an old enough geezer to remember the precious metals run-up in the early '80's.  Somehow the Federal Reserve, Wall Street and the shifty-eyed politicians in Washington D.C. have managed to stick it together for another 20+ years.  How they managed it is still beyond me.  All the evils accompaning the "fiat economies" have multiplied many times, merely assuring more shit will hit the fan at the appropriate time.

We all know that it will NOT occur just prior to U.S. elections, and precious metals seem to have hit a plateau, at least temporarily.  Can they stick it together with sufficient chewing gum and spit through 2007?  Or, will the whole thing crumble in the Summer and Fall next year?  Iron, copper and other metals (some in the form of Listeroids) have already been creeping up.  So, we know in general how TSHTF, but those crucial particulars of when and how still elude us.  Will the crucial spark be riots in Mexico, Brazil, Pakistan, China?  Or will a run on the market in Singapore, Manila or Bombay be the key?  It is like the weather, the proverbial flap of a butterfly's wing in Africa will trigger the hurricane on the Gulf Coast.  The only thing I have learned over the years is to stay out of debt and practice landing on my feet - it gets harder with each passing year though.  Best of luck to you and yours.

Ray

[oldnslow]

Great wealth fosters greed and hinders ones sense of morality. We depend on our government to do it's job responsibly. People consumed by maintaining an artificially high standard of living fail to notice because they are infact running their personal finances the same way.

It is not only when the SHTF but how it will be dealt with. A poorly managed and corrupt government in power would have no trouble issuing laws limiting commerce and personal freedoms in exchange for stopping the suffering. Will we let it happen?

[aqmxv]

It is not only when the SHTF but how it will be dealt with. A poorly managed and corrupt government in power would have no trouble issuing laws limiting commerce and personal freedoms in exchange for stopping the suffering. Will we let it happen?

I wish I could be optomistic on this one, but we can already see the handwriting on that particular wall.  The teeming masses in the US have been giving away liberty to purchase convenience for quite some time.  The education system is now focused on getting kids to sit still in seats for longer hours than ever before for the sole purpose of pounding standardized tests into their heads.  Civics class?  Ha!  They don't even get recess anymore.  The lack of outrage over the "findings" from the executive branch tells you all you need to know about the electorate.

It is unreasonable to assume that these sheeple are going to do anything other than exactly what the mommy state tells them when the time comes.  Said mommy state is going to go down the well-traveled path of ensuring its survival at the expense of all else.  You can bet that reality tv shows and sitcoms will be found to be critical to the health of the nation long after habeus corpus is permanently "suspended."  If the TV goes dark, the sheeple might start milling around in the street demanding change - can't have that.

If there's a shift toward rationality and sustainability, it'll be after a lot of pain, not before.  People in pain don't vote for incumbents.  So miuch for rational responses from government...

[mobile_bob]

a lesson in roman history is in order, perhaps we can look back to see how it worked then and draw a corellary (sp)

with each leader (caeser), there came more perks to the people, afterall it was sort of a democracy and they had to keep the people fat and happy in rome.

more bath houses, bigger plays, more holidays, more gladiators and animals put to death to entertain the masses, (sort of like pre tv)

got to the point that rome produced nothing herself, not a damn thing, everyone consumed, and went on holiday until toward the end they had if i remember my history in excess of 200 days out of the year that was some sort of celebration, holiday or whatever.

unlike rome we certainly don't have that much free time, i know i don't. but....

keep us entertained, keep us dumbed down, keep us thinking we have to buy stuff, keep us afraid, and....

create the problem and then provide the solution, isnt that what our government has come down to?

talk about education for a bit

i was taught phonic's, then they stopped that

10 years ago washington state went to the new math for elementary school kids, new math my ass.
guestimation? wtf is that?  they spent millions on the new textbooks and programs, only to see it fail again and now with kids not prepared they will change it again with milliions more spent on text and training, let alone the hell they passed on to that generation

basically government screws up all it touch's in my opinion
only thing they should do is provide national defense, and some very basic services

i am so tired of seeing them create the problem where one does not exist, and then provide the solution which never seems
to get the job done, at huge expense to the tax payer and to the folks that are affected by their screwing around.

thats ok,,, we as a nation will continue to sit and watch tv, while rome burns

just give us more distraction, cheap interest rates, flash across the screen all the new stuff that we are told we cannot live without, we will stay entertained.

nothing more than a frog in a pot of water over a fire, we are cooking and don't even know it.

i love it when i get pissed off, just wish more folks would get pissed off too.

bob g

[mobile_bob]

ok this topic has got me pissed off now, so you all will just have to take my crap...

i dunno how many of you have been watching programs such as on the history channel, discover and travel channels where they go into the outback, jungle, amazon or whereever.

my observations

to a casual observer, one looks in from the outside and thinks, what a poor bunch of folks, they don't have a pot to piss in!

until you look further and see something far deeper, sort of behind the scenes

they build their houses by hand using local materials, no mortgage!

they hunt, plant or other wise live off the land, they seem to eat pretty well for the most part

mom and dad are around to raise the kids, the kids work some and play alot, everyone seems pretty happy

they support grandpa and grandma, along with any other relatives that are crippled or cannot provide for themselves

they dont seem to sweat car payments, insurance payments, fancy clothes and all the other crap we seem to have to have.

they dont have to take out a second mortgage to reroof the house, or add on a room

ya those poor sombeeches, they got it horrible

if i was them i would shoot first and ask questions later, in other words stay away from me with all your fancy crap.

am i advocating living in a mud hut? no... but there has to be something in the middle that would work far better than where most of us have found ourselves to be.

anyone remember the pbs mini series 1873 ?

anyone read the book 1491?

anybody really looked at some of these other cultures or tribes?

i dont know if they have it right or not, but i am deeply suspicious of whether or not we have it right.

one thing is for sure, if i was young and single i might very well go join one of those tribes!

bob g

[Doug]

Well Bob I recall watching a TV show years ago that said a lot of the same things you bring up. Basicaly a simple life is a happy life if you can grow enough food.

But you also have to consider we are used to this lifestyle.
I can't bare the thought of life without socialized medicne because I am all to aware of how easily my son gets ear infections.
Fresh oranges in winter, you can live without them but your diet on localy grown food in the north can get fairly dull and dry in the winter.
Basic transportation and working for a living in a pre-industrial society is so alien to me I would probably starve and not be able to feed and shelter my family.

What we need to find is a way to preserve a sustainable lifestyle in a modern industrial society.

Doug

[rmchambers]

All this talk kind of reminds me of an old BBC miniseries "Survivors".  Granted the premise of that series was a global plague that wiped out 90% of the inhabitants rather than some sort of economical one.

The end result, people had to live off the land and money was useless.  Barter was the order of the day and if you were a doctor/vet/blacksmith/practical engineer your knowledge was now a valuable commodity.

I don't relish the day when money becomes worthless, but what to do about it?  Do we go out and buy gold? would that be of any use in bartering?

My biggest debt now is what I have left on the house and my truck payments, I should be done with the house in 7 years and the truck in 2 but even "owning" those things outright doesn't give me the warm and fuzzies either.

We've been told that our electric generation rates are going up by 50% starting January 1.  talk about expensive, we are already paying more per KWH than just about any other state.  Starting to think that being able to run off-grid might not be so far fetched even in a suburban environment.

I appreciate Guy and Bob taking the time to put their thoughts down, it was very interesting and sobering reading.

Robert

[mobile_bob]

i defer to Guy for his vast insights and copius reference, my hat is off to him for the time he spends shedding light on whatever topic interests him.

Doug:

your points are well taken, but as an american we don't have socialized medicine .. yet... and the medicine we have available to the vast majority of folks living
in flyover country is sadly lacking and rediculously expensive

as for going back to caveman life, i am not advocating that, but,, certainly there is some middle ground that might be quite a bit more tolerable.

for instance mid 50's

average house was ~1100 sq/ft, 3 bed 1 bath, and if it had a garage was certainly only a single car unit.
average family, dad worked, mom stayed home and raised the kids, most folks drove a good solid used car or if new a conservative one like your basic chevy, ford or dodge. kids all dressed pretty much the same, basic sneekers, flannel shirts and standard jeans, probably all from sears or wards mail order.
small towns worked together to raise kids, educate them, trade and barter was an everyday concept, you could by your groceries and pay by the week or month, dr bills were reasonable and also could be paid over time if need be.  hardly anyone had credit cards and kept to a family budget, hand me downs were common. kids got summer jobs, delivered milk and groceries etc.

tomato's looked, smelled and tasted like a tomato, same with peaches and apples, and they came from some part of our country

skip ahead 50 years

average new home construction is near 3000 ft, at least 3 bed, 2 bath, 2 car garage, and huge mortgage
mom and dad both have to work, kids raise themselves, mom and dad both have to have if not new damn close to new cars (neither of which is near as basic as they wree in the 50's) , gotta have a boat, jet ski's, motorcycles, mortor home or whatever. kids all have to dress in the latest fashion from the local mall, forget hand me downs! groceries are expensive, quality of food is in the tank, forget paying weekly or monthly. Dr bills,,, oh yes, take out a second mortgage for that. mom and dad got a purse or wallet full of max'd out plastic, kids either don't or can't work because of labor law's safety nazi's or whatever.

tomato's look like but don't smell or taste like a tomato, same with peaches apples etc, and certainly come from australia, japan, south america or anyplace other than here.

i dunno the answer, but i have a suspicion what the answer is

to that end i am firming up my plan to drop out and venture on the grand experiment, that is to see how close to self sufficiency i can come.
who know's maybe i can get to 90%, probably never 100%.

90% of something is far better than 100% of where we are heading

bob g