Whoever those economists are who are predicting a return to the gold standard, they are as foolish as those who believe the predictions in The National Enquirer. The government cannot afford to allow that to happen, no matter what happens to the economy. Quite the contrary. The government will do the exact opposite: they will continue to print more worthless paper money to cover their deficit spending, causing hyper-inflation. We’ve seen it happen before, every time a government is unable to pay its debts. It’s happened here twice already: the Continental Congress during the Revolution and the Confederate States during the Civil War. Even the Union for the first time since the adoption of the Constitution started to print paper money to cover its wartime spending. Then in the Depression the government stopped allowing the circulation of gold coinage entirely, so it could inflate the currency to cover its debts. There was also the hyper-inflation in Germany in the twenties, in Argentina in the eighties and nineties, in Russia after the Revolution, in Italy through most of its history (otherwise why would the lira have been so worthless), and in Mexico, also over an extended period, but especially in the seventies. And I would be willing to bet that if we were to investigate the causes of all these inflations, they would all turn out to be the same: the result of the governments involved printing worthless paper money because they had spent too much to pay off their debts with real money. Even the Roman Empire did it: the state gradually debased the currency, mixing more and more base metals with the gold and silver, in order to increase the money supply so that the state could pay its debts. I fully expect the US dollar to begin hyper-inflating in the near future, especially since Obama is almost certain to be re-elected–but even a Republican administration and a Republican Congress would probably do the same thing. The temptation is simply too great. It’s the only way even partly to pay off the national debt without imposing ruinous taxes or eliminating thousands of programs, including Social Security. While the politicians are always willing to increase taxes, they won’t be willing to increase them enough to counter their deficit spending, and they will never, ever consider cutting programs. Since an increase in taxation, spending cuts, or inflation are the only three solutions to the debt problem, by the reasoning of the politicians, the only viable alternative is inflation. There will therefore be no return to the gold standard. It’s a foolish pipe dream.
I don’t need to rely on historical precedent to prove the validity of my argument. A simple logical analysis of the current situation is sufficient: there are only three ways of dealing with the debt and deficit spending: increase taxes to the maximum, cut spending, or inflate the currency. That’s it. There are no other alternatives. As I said in my previous article, although politicians will increase taxes to some extent, they will not increase them enough to solve the problem, and under no circumstances will they ever cut a program, especially not the expensive ones that are really driving up the debt, such as Social Security and Medicare. Since they will neither increase taxes nor cut spending, they are left with only the third choice: inflate the currency; so that is what they will do. It won’t matter whether it’s the Republicans or the Democrats, sooner or later someone will do it… if they haven’t started already–which I rather suspect they have.
How is the Key West figuring in this dilemma? Well, it is as close as one can get to the promised land here on Earth, particularly given the state of the affairs. It is GOLD! My advise would be go west and enjoy, the end is near. Find the wisdom in margaritas.
From our Washington corespondent