Tuesday, February 22, 2011

A Cruel Irony

A lot of things can happen in 32 years. Significant history. I'd like to take you back to 1971 for just a moment. Some forty years ago when a very significant event took place. Most have never heard of it. I'll call it the unraveling. Go figure, Nixon was in the WH.

On August 15, 1971, the United States pulled out of the Bretton Woods Accord taking the US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float". Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold.

That singular event would change the course of history forever. As a direct result of these new vast money printing capabilities, OPEC quickly scrambled and formed. The price of oil quadrupled from 3 bucks to 12 bucks a barrel. Gas went to .87 a gallon.

Another interesting thing happened. The bankers, the criminal class, no longer bound by the gravitational pull of gold, went on a printing spree. By 1979, we had us a full blown recession. An ugly one. Inflation was rampant- approaching 12%. Eventually Fed Chairman, Paul Volcker, put the brakes on that mess. He hiked the Fed Funds rate to an ungawdly 20%. http://en.wikipedia.org/wiki/Paul_Volcker

Our debt has never gone down since then. What was once an annoyance has now become an anchor. http://www.scribd.com/doc/5467519/US-National-Debt-19292008

I was in college in 1979. Working, drinking too much, and falling behind. I bought some silver back then. In fact, I made a 200% profit in just a few months and bought a car with it. I paid off the student loan I used to buy the silver with. I had toyed with Geology, English, and Economics as majors, but instead I landed on law enforcement. I graduated just as the recession was ending. That was the fall of 1982.

In 1982, we were still the beacon of the capitalistic world. We didn't trust government but we had a rule of law. We just knew we would bounce back. Leaders had balls back then. They took a stand.  There were always things to worry about and we were worried about the Japanese. They were making better cars and better electronics. They were even buying our debt and our real estate. The Japanese looked unstoppable. But we underestimated them. It would be the Japanese, and no other, that would do in the Japanese. Their banking class, the criminals, did what bankers always do. In the late 80's, they relaxed all lending standards and printed themselves into oblivion. They are still mired in that mess some 20 years later.

Now you'd think with all of that history staring us in the face, we'd have learned something. No, not us. We were smug. In the intervening years, the bankers our own criminal class, managed to buy off and grease the members of Congress. By 1999, the last control came off. The Glass Steagall act. Not coincidentally, and shortly thereafter, the criminal class did the same thing they've always done. Lacking a gold standard, ignoring the Japan experiment, and with no legal entanglements binding them- the bankers went out and did the very same thing that bankers always do. They gave away money and fueled that dot.com bust. It would take just 6 more years to fully unravel. The new bankers, smarter than those idiots in 1929, the idiots of 1971, the idiots of Japan. Thus we became the idiots of 2007. 

There are a few common denominators. In every case, bankers controlled the money supply. In every case, they managed to to exploit or remove money supply constraints. In every case, the result was the same. Inflation, a bust, some sort of deflation/stagflation, unemployment. For years and years.

You'd think we'd learn.

So what is it like in 2011? We took our lumps in 1979 and we got well in 4 years. We had the capacity to bounce back and even though we didn't trust government at least there was a rule of law- that existed at least through the savings and loan scandals of the 80's. Today, there is no rule of law. The criminal class was allowed to escape. Obama saw to that. We have lost 30 million jobs. We are mired in debt that the world doesn't want to buy and so we buy our own. The Bernank tries to spend us out of debt and blows hot air into a stock market balloon hoping to re-inflate it. He lies about inflation and the BLS complies. The media tries it's own brand of CPR. The banks are mostly zombies- allowed to fudge their balance sheets to present an illusion of health. Our leaders have all just fled emotionally, not present, like Wisconsin Democrats running off to some neighboring state to hide and hope it will all go away.

All of those perceived enemies. It seems the world didn't need to worry about us. Sooner or later, like the Japanese, we would do to ourselves what no other country had been able to do us. Unstoppable, I think, for just a while.

What is the difference in 2011? Nobody changed the rules. We have no confidence in our ability to bounce back. We have no leadership. We have lost all hope that this will change soon. When I see those two words, hope and change, I see it as a cruel irony. That we fell for that. That's the difference between then and now.

1 comment:

rawmuse said...

So, who has done an audit of the gold at Ft. Knox? Lately, I mean.