Fool me twice, shame on me.
The Federal Reserve chairman Big Ben, recently told us that the recession is in technical terms, “over”. Big Ben however neglected to tell us some interesting facts. For example, that neither he nor other members of the Fed foresaw the current crisis even though it was staring them in the face, very much like a deer staring into the headlights of a coming truck. Big Ben also forgot to mention an important fact about when this current recession/depression really began. The period of economic contraction really began some time between 1998 and the year 2000.
If not for deliberate inflationary policies of both the Fed and the Government, we may have had a negative GDP growth rate for the past 8 to 11 years. The Fed is currently engaged in the largest Ponzi scheme ever witnessed in world history. The US government borrows money to finance deficit spending, and the Fed prints money to buy US government bonds. Meanwhile the dollar continues to lose value in real terms. To put this strategy in perspective we have to consider the following points.
The dollar peaked in value in late 1999, and has declined 30% since. The stock market has also been in a long-term bear market for at least the last 10 years. In real terms the market would have to triple or more for investors to achieve the same level of wealth they had at the peak of 1999. By “real terms”, I mean purchasing power of real goods and services.
Consider the following quote from economist, John Maynard Keynes,
"By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in 1 million can diagnose." (1920)
Let me use examples to better illustrate these points. $100,000 of cash in 1932 is now worth $2000 in purchasing power, that is a 98% destruction of purchasing power. 100,000 worth of gold bought in 1932 is now worth $4,449,000. Why did the Government take all the gold from the people then?
Big Ben has signaled more of the same for an extended period of time. Investing in forward-looking, quality companies and hard assets may have been just a preference for some in the past, but I believe it is a necessity today; not to accumulate wealth, but to simply maintain it.
As I have explained in the past, let me remind you again today. . .
Our economy for the past 400 years or so has had an average of 17 years of expansion, and an average of 17 years of contraction. This dynamic will not change because of idealistic Presidents or because of corrupt representatives.
Elected officials like all humans, want to believe they are contributing to the common good. The paradox is that their bloated egos and misplaced priorities are in fact the problems we citizens face. Over-regulatory measures combined with increased taxation during a recession are a recipe for the next Great Depression. There is no system that is perfect, as the nature of man is not perfect, but the overriding belief of politicians today seems to be that THEY know best exactly how to spend your money.
What do you think?
