Borrowing, Spending,
Counterfeiting
August 22, 2005
Few Americans truly understand how our
Federal Reserve system enables Congress to spend far beyond its means, but the
cycle of spending and printing money affects all of us.
Simply put, the more money our Treasury prints, the less every dollar is
worth. Our
pure fiat money system, in place since the last vestiges of a gold standard were
eliminated in the early 1970s, has reduced the value of your savings by 80%.
Disregard the government’s Consumer Price Index, which substantially
underreports price inflation.
Monetary inflation is true inflation, and we only need to look at the
cost of homes, cars, energy, and medical care to recognize that a dollar buys
far less today than ever.
Economist
Mark Thornton of the Ludwig von Mises Institute lays out a sobering case against
the long-term health of the U.S. dollar.
He identifies several facts and trends that bode ill for millions of
Americans counting on dollar-denominated assets to fund their retirements.
First,
federal debt continues to grow exponentially and shows no sign of abating.
Americans were shocked at the notion of a $1 trillion federal debt in
1980; just 25 years later the total approaches $8 trillion.
The Bush administration and the current Congress have increased spending
at rates unseen since the New Deal and Great Society eras, and single-year
deficits now exceed $500 billion.
There is zero political will in Washington to curb spending, as evidenced
by the shameful transportation bill recently passed by Congress.
Second,
federal entitlement programs like Social Security and Medicare will not be
“fixed” by politicians who are unwilling to make hard choices and admit
mistakes. Demographic
trends will force tax increases and greater deficit spending to maintain
benefits for millions of older Americans who are dependent on the federal
government. Faced
with uncomfortable financial realities, Congress will seek to avoid the day of
reckoning by the most expedient means available-- and the Federal Reserve
undoubtedly will accommodate Washington by printing more dollars to pay the
bills.
Third,
future administrations are unlikely to challenge a foreign policy orthodoxy that
views America as the world’s savior.
We are hemorrhaging billions of dollars every month in Iraq, and we waste
billions more every year through foreign aid and overseas meddling.
A foreign policy based on nation-building and the imposition of
“democracy” abroad, in direct contravention of our founders’ admonitions,
is not economically sustainable.
In Korea alone, U.S. taxpayers have spent nearly one trillion in
today’s dollars over 55 years.
A permanent military presence in Iraq and the wider Middle East will cost
enormous amounts of money.
Finally,
we face a reordering of the entire world economy.
China, Japan, and Asia in general have been happy to hold U.S. debt
instruments in recent decades, but they will not prop up our spending habits
forever. Foreign
central banks are increasingly reluctant to hold more U.S. dollars,
understanding that American leaders do not have the discipline to maintain a
stable currency.
When the rest of the world finally abandons the dollar as the global
reserve currency, both Congress and American consumers will find borrowing money
a more expensive proposition.
All
of these factors make it likely that the U.S. dollar will continue to decline in
value, perhaps precipitously, in the coming decade.
Will it take an economic depression before the American public finally
holds the political class accountable for its reckless borrowing, spending, and
counterfeiting?
The
greatest threat facing America today is not terrorism, or foreign economic
competition, or illegal immigration.
The greatest threat facing America today is the disastrous fiscal
policies of our own government, marked by shameless deficit spending