The Federal Reserve has created more than a trillion dollars in the past few years. The last two federal budgets have had back-to-back one trillion dollar plus deficits for the first time in history. The federal government budget shows no signs of stabilizing at more than $3.5 trillion annually, let alone declining from these nose bleed levels anytime soon. Unfunded liabilities of the federal government have reached an astonishing $202 trillion, according to one recent analysis. Despite the collapse of the Soviet Union and the supposed “peace benefit,” total military spending is reaching unprecedented levels in a post Cold War era.
Meanwhile, U.S. military forces are bogged down in a futile mission to bring freedom and democracy to a feudal society, and have bases spread throughout the world to defeat terrorism. In addition, the cost of invading both Afghanistan and Iraq have cost more than $1 trillion…and counting.
Commodity prices are soaring, especially foodstuffs. The value of the U.S. dollar has fallen virtually interrupted against all major currencies for the past quarter of a century. The Swiss franc now costs more than a buck. The price of gold nearly reached $1,400 per ounce this month, an all-time high. Silver recently traded at a 30 year high of more than $24 per ounce. In short, a “run” on the dollar is occurring right now.
All the ingredients are in place for a “collapse” of the U.S. dollar. That is, a flight out of a currency occurs when it loses value precipitously against other major currencies, precious metals (the ultimate stores of value) and commodities— food, industrial raw materials, and energy products. In such a scenario, there is only one conclusion, the flooding of an economy by the central bank to “stimulate” consumption and investment, ends badly. The specter of a hyperinflation depression cannot be ruled out because central bankers have embraced the fallacious ideology that creating money is a “stimulant” for the economy.
On the contrary, creating money can only proceed as long as the public believe that higher prices will not occur. With the inevitable rise in consumer prices on the horizon because producers will feel the pressure to raise consumer prices as their raw material costs increase, we will witness once again Ludwig von Mises insights about the central bank’s monetary polices: Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed.
In other words, we are at the proverbial crossroads. If next week the Federal Reserve announces another round of “quantitative easing,” a fancy shmancy word for legalized counterfeiting, commodity prices should continue their climb. However, if the Fed’s much anticipated QE2 is less than the market expects, the U.S. dollar could rally, precious metals could take a breather and commodity prices could have a correction. After the correction, we will be off to the races. Price inflation will come back and commodity prices will go through the roof.
When? Sooner than the talking heads on cable television want to admit. Don’t be surprised if the next financial crisis occurs in 2012.
Already the damage to the U.S. economy after decades of taxing, spending, borrowing and printing of money is taking a massive toll on the American people. This “scorecard” reveals how far the U.S. economy has fallen under the leadership of both the Democrats and the Republicans, and is on the precipice of a major decline.
Instead of restructuring the federal government, from A to Z, the bipartisan coalition of big spenders from both political parties, have their collective heads in the sand and have abdicated any claim that they are serving in Washington DC to promote the general welfare of the American people.