The world economic outlook news this issue includes topics of the value of the U.S. dollar and borrowing money for years that doesn't really exist, bringing on a possible economic collapse.
The world economic outlook column shares information on economic news, this issue covers money and the world economy.
Illustration By Fotolia/michelangelus
The world economic outlook news this issue shares information on how the value of the U.S. dollar has weakened worldwide due excessive borrowing over the years.
It seemed like a good idea at the time . . . back there in July of 1944, at the Bretton Woods Economic Summit. After all: Hadn't the United States just proven itself to be the "Arsenal of Democracy"? Hadn't the U.S. just saved the world from the Axis powers? Didn't the United States have an almost invincible hammerlock on the world's supply of gold? Wasn't the U.S. — even then — pumping millions of dollars' worth of equipment, food, and other goods into the reconstruction of almost all the war-torn nations — friend and foe alike — on earth?
Of course! Everyone knew that the U.S. of A. — for many reasons — had emerged at the end of the war as the richest and most powerful country in the world. Besides that, ole Uncle Sugar was a Good Guy too. A little naive, to be true ("The U.S. has never lost a war or won a conference," said the negotiation-wise Europeans with a wink) . . . but certainly thoughtful, generous, kind, clean, and reverent to a fault.
So what could be more natural than to make the U.S. dollar — which, at the time, most certainly seemed "as good as gold" — really as good as gold. Shucks! Everybody knew that Uncle Sam's word was his bond anyway. And that Fort Knox was literally bulging with the yellow metal. And that when the leaders of the United States said that the dollar would always be freely convertible into gold (at the rate of $35 per ounce) . . . well — by gum! — they meant it.
And so — with the stroke of a pen — the U.S. dollar was officially declared to be As Good As Gold . . . and ail the other nations in the world were encouraged to use our Treasury's promise to cough up one ounce of .999 fine (or thereabouts) gold in exchange for thirty-five one-dollar bills . . . as the basis for their own currencies.
That is: If you were in charge of the money supply for Lower Slobbovia, you could salt away an ounce of gold in your nation's central bank vaults . . . and then — since people generally found it more convenient to carry a few pieces of paper around instead of a pocketful of heavy, clunky metal — you could issue one ounce worth of IOU's (paper money) against it.
Or (as central bankers and politicians are always quick to figure out) you could do far better than that! History has shown, time and again, that — as long as times are good — people vastly prefer to transact their business with light, convenient paper notes rather than bagfuls of heavy gold coins.
As a matter of fact, only a very few individuals will ask to trade their paper money — which, remember, is merely a collection of IOU's issued against a stack of gold ( real wealth) — in for that gold on any given day. So few . . . that you can actually print up and circulate about five ounces' worth of money (IOU's) for every one ounce of gold that your central bank vault really contains.
Think of that! If you're a central banker, you can arbitrarily "print money" — create money out of thin air — that doesn't actually represent any real wealth at all ... loan this "ghost" currency out at interest . . . become wealthy on the proceeds . . . and, at least for a time, get away with it! Or, if you're a politician with a central bank at your command, you can order up big wads of the same "ghost" money out of the same thin air . . . and — at least for a time — use it to finance all kinds of grandiose social schemes, weapons races, and other programs "for the people and the good of the nation".
What a deal (at least for a time) for central bankers and politicians! But wait! Thanks to the Bretton Woods conference, this particular setup was magically sweetened several times over again for all its "insiders". Don't you see? By merely drawing up a Gentlemen's Agreement that the U.S. dollar was As Good As Gold . . . why, you could multiply the Good Thing you had going for yourself another five times over.
That is: For every dollar's worth of gold (at $35 an ounce) that the United States had in its central bank vaults, the U.S. could issue five paper dollars.
And — since all the finance ministers and heads of state (more or less) of the whole free world had agreed that the dollar was As Good As Gold — well, obviously, for every one of those U.S. dollars you then stashed away in your Lower Slobbovia central bank vault . . . you could print up five more dollars' worth of Slobbovian currency. (Giving you, of course, a final money supply 25 times greater than the amount of gold you started with.)
Hot Dog! Let the Good Times roll! And roll they did. Thanks to the mountain of gold in its vaults and the Bretton Woods agreement, the United States came out of World War 11 with what — at the time — seemed to be an unlimited magic wand.
What's that? Europe needs to be rebuilt? Just print up some dollars and spend as much as you have to to get the job done. The commies are causing trouble in Korea? Run off a few billion more paper IOU's and finance a war. The Russians wanna have an arms race? Roll out the printing presses and pay for our entries with another shot of paper money. Got a little recession throwing people out of work right here at home? Kite another batch of paper to "get this country moving again". Need to buy a few million votes? Declare some vast new social scheme and pay for it with paper.
And so we passed through the last half of the 40's . . . through all of the 50's . . . and on into the 60's. First class all the way. Unlimited expense accounts. With bigger and better tail fins on our cars, a new home in the suburbs for everyone (well, everyone who really counted anyway), second houses up on the lakes, imported TV's and stereo sets and automobiles, and vacations all over the world.
The rest of the free nations weren't doing so bad either. As fast as we pumped out those paper dollars for the reconstruction of Europe, the Cold War, the missile race, the space race, the imports, the vacations, and all the rest . . . our allies stuffed 'em into their central banks and used 'em as the foundation for the creation of five times more of their own currencies. Which they then used to buy machine tools and Coca-Cola and all kinds of stuff from us.
And everybody in the developed nations went out lookin' for more and more raw materials to exploit to keep all this industrial activity going. And, pretty soon, we had all discovered just how little those dumb Arabs would sell their petroleum for and how easy it was to inveigle Africa and parts of Asia and almost all of South and Central America and the rest of the underdeveloped world out of its raw materials. And we all kept right on cranking our printing presses up a notch or two from time to time so's we'd have more paper IOU's to trade away for fresh infusions of that real wealth — oil and minerals and timber and cheap labor — that we'd come to depend upon so heavily. And we all figured that the binge would never end.
But . . . somewhere . . . along . . . the way . . . a few . . . of the smarter folks among us . . . began to realize . . . just what the hell was going on.
"Hey!" each of these somewhat brighter people told him- or herself. "We're all getting 'rich' . . . but we're doing it on the 'buy now, pay later' plan. We're paying for everything with paper IOU's. And when you buy on credit, sooner or later you have to settle the bill. What's going to happen when all our bills come due . . . and, maybe, there isn't enough gold to go around? Perhaps I'd be prudent if — right now, while the gettin's still good — I just went ahead and converted some of my paper IOU's into gold. That way I'll be prepared if a crunch does come."
And so these more attentive folks — people who could tune out the brayings of the "something for everyone" and "prosperity at the stroke of a pen" politicians and think and evaluate for themselves — did begin to cash their inflated currencies in for dollars. And then they traded those dollars for little bits of the mountain of gold that ole Uncle Sugar had stashed away in Fort Knox.
Actually, to a small extent, this "cashing in" of paper for gold had been going on from the start. But it really began to accelerate in the mid-60's when President Johnson — in the egomaniacal way of most recent U. S. heads of state — declared that we'd have both guns (the Vietnam War) and butter (The Great Society) . . . and kicked the dollar printing presses into overdrive to pay for them.
As that increasing flood of paper IOU's began to wash over the world, the greater and greater numbers of dollars started to bid up the prices of the limited amounts of the planet's resources in a noticeable way. And as those dollars were then deposited in central banks all over the earth, the even larger flood of marks, francs, pounds, etc., which were thereby unleashed, bid those prices up even more.
Pretty soon, even the duller among us began to realize what was going on. And not just realize . . . actually become frightened by the tidal wave of IOU's that was starting to sweep away the world's established values.
Holy Gee Whiz! All of a sudden that flood of IOU's was pushing up the prices of everything that everyone bought . . . at the same time it was diluting and eroding away their savings. People all over the world suddenly began to notice what was really happening to their paychecks, their savings, their standards of living. They were all handling more and more IOU's . . . but those IOU's were actually buying less and less.
It wasn't just a few of the brighter folks now who wanted something solid, something hard, something real to hang on to. Dang it! People all over the world wanted to trade their IOU's for gold . . . and they didn't care who knew it! And they did trade the worthless paper for U.S. gold too . . . right up until President Nixon "slammed the gold window" in their faces in 1971 and told the world that — sorry! — the United States was no longer interested in honoring its debts to the rest of the world . . . was no longer interested in redeeming its IOU's.
Now it should be noted right here that all the little folks who wanted gold in the late 60's and early 70's were not "bad" people. Nor were the brighter folks who started cashing in IOU's for gold several years before them "bad ' either. Do not listen to any "official", any government spokesman or woman, any head of state who tries to tell you that "speculators" or other "bad people" have bid up the price of gold or created a run on the dollar or otherwise knocked the world's finances out of kilter. Politicians are always spineless and always try to shift the blame to completely innocent bystanders after they — the politicians themselves — have created a crisis.
In this case, the inflation which plagues us now can be traced direct-back to the Bretton Woods conference . . . in which foggy-minded politicians and Keynesian economists deluded each other into believing that they could create everlasting prosperity with the stroke of a pen. That s what set the stage for the troubles we currently enjoy . . . and the terrible, terrible "Day of Reckoning" which still looms before us.
But, of course, a stage needs actors to bring it to life . . . to help it realize its (in this case, awful) potential. Luckily for all of us, neither Truman nor Eisenhower (the first two U.S. Presidents to serve after Bretton Woods) were high enough rollers to turn that stage into the living, breathing tragedy that it now has become. Sure, they both tried — each in his own way — to squander money on the Cold War, and Foreign Aid, and national highway programs, and "police actions" around the world . . . but neither seemed capable of spending IOU's fast enough to raise the U.S. rate of inflation much above 2% annually while he was in office.
Jack Kennedy — with his grandiose space program and social ideas — was in a different league entirely. But even he was a piker compared to Lyndon Johnson . . . who, in turn, was immediately topped in his economic stupidity by Richard Nixon.
(Watergate — which, as we all know, forced Nixon out of office in disgrace — was as nothing compared to the criminal insanity of Tricky Dick's so-called economic "policy". Nixon had no economic policy, because he had no interest in economics. Which, perhaps, explains how he could — seemingly unknowingly — rend the economic fabric of the world with his incredible deficits, the slamming of the gold window, tremendous giveaways of U.S. grain — real wealth — in exchange for Russian and Chinese IOU's, and a Keystone Kops "Phase 1, Phase 2" wage and price controls policy — designed, of course, to "punish" the "bad" speculators who were "causing" inflation — etc., etc., etc.)
Thanks to this "policy" we reaped many unpleasant repercussions, including: the OPEC nations quadrupled the price of petroleum, the communists (after receiving the billions of dollars' worth of grain we'd given them on the cuff) diverted huge new resources to their weapons programs, we all suddenly found ourselves trying to battle raging inflation and a dragging near-depression at the same time, and — in general — everything went to hell in a hand basket.
After that it was a real relief when Jerry Ford stumbled onto the stage, tripped over his own foot, and bumped his head. Maybe he was a little awkward while in office, but Ford (at least in the field of economics) may yet turn out to be the most underrated President the United States has ever had.
Ole Jerry's evenhanded "steady as she goes" approach, after all, only pulled the whole world back from the very brink of economic chaos, confusion, and catastrophe. It only gave everyone a much-needed breather at a time when that breather was absolutely essential. It only showed the rest of the planet that — by gum! — the U.S. still could produce an administration which really and truly understood that — sooner or later — this nation would have to start living within its means and stop papering the world with worthless IOU's. My God! Where would we all be right now if it hadn't been for Jerry?
We shouldn't have asked. Because Little Jimmy Carter — with his incredible deficits, mind-numbing trade imbalances, capricious tax programs, concessions to the communists, rudderless "leadership", energy "solution", and Nixon-like grasp of economics — seems determined to show us. Hang on, everybody. We're in for a rough ride . . . and it's downhill all the way. You ain't seen nothin' yet!
Surely, however, you've seen enough to know that only fools put their trust in politicians (and the central bankers and economists who serve them). Politicians — sooner or later — always screw up a good thing. Why? Because it's simply their nature. Politicians want — need! — to be loved. That's why they go into politics in the first place. And that's also why — once in office — they always start tinkering with a nation's real money . . . trying to find ways to buy everyone's love by "giving" all their constituents everything that everybody's heart desires.
Well I've got news for you! Governments can't "give" anybody anything. Not unless they take it away from someone first. Because governments don't have anything. There is no such thing as "federal" money. There is only the wealth — the goods and services — that a nation creates when its citizens are gainfully employed. And the only way a politician can "give" some of that wealth back to his constituents . . . is by taking it away from them first.
If he's honest, a politician will admit that fact and "pay as he goes" by taxing everyone heavily enough — day by day, week by week, month by month, and year by year — to cover his administration's expenses as they're incurred.
But people don't like to be taxed. And politicians are seldom honest. And so we wind up with one wimp after another in office . . . wimps who tax everybody as heavily as they can get away with, and then pay for the rest of their flights of fancy with worthless IOU's that — they hope — someone else (you!) will have to make good sometime in the future.
Unfortunately, the future is now. Thanks to Bretton Woods, John Kennedy, Lyndon Johnson, Richard Nixon, and — now — Little Jimmy Carter . . . the world is once again teetering on the very brink of an absolutely terrifying economic collapse.
"No one wants the dollar anymore," says the Paris financial daily Les Echos . No one wants the IOU's. Jimmy Carter is still crankin' them out and trying to force them down everybody's throat . . . but no one wants paper promises anymore.
Instead, people — and oil producers, and other heads of state, and farmers, and coal miners, and all the rest of us — want something solid, something hard, something real to hold onto. We want gold and silver and goods and services and our own secure place in the world and some guarantee that we'll have these things tomorrow and the day after and the day after that.
Unfortunately (and it's our own fault because we all wanted to believe those Sugar Daddies in Washington), that's not what we're getting these days.
Instead, we're all handling more and more IOU's now . . . and finding that they buy less and less of the things we need. We're all being kicked up into higher and higher tax brackets by this paper flood . . . and noticing that we're no "richer" when we get there. We're all beginning to realize that our social security and pensions and annuities and other forms of "income" that we're looking forward to in our old age . . . probably won't be worth the paper they're printed on when we start to collect them. We're all starting to understand that this is the generation which will have to pay the bills — one way or another — that the U.S. government has been running up for the past three or four decades.
And those bills — and the interest due upon them — and the unfunded government commitments that haven't even come due yet but which "someone" (you!) still has to cover .. . are staggering. So staggering, in fact, that there's no longer any use in even guesstimating and adding them all up together. Because there is absolutely no way that they can ever be paid.
Friends and neighbors, although some of us (including, apparently, Little Jimmy Carter) don't seem to know it yet . . . the U.S., the rest of the Free World, and the whole communist bloc is already bankrupt. We've all been mortgaging the future so fast and so loose, that none of us can ever pay off the bills we've run up.
Now maybe we can keep the shell game going one more day . . . maybe another year . . . maybe ten. But sooner or later (and the odds favor sooner . . . much sooner than most of us yet realize) our financial house of cards is going to collapse. And when that Great Day of Reckoning comes, it's going to make the depression of the 30's look like The Teddy Bears' Picnic by comparison.
Friends, for over eight years now, MOTHER has been suggesting that you invest your faith in yourself and in real wealth. But, today, she's no longer suggesting . . . she's recommending in the strongest possible terms that you do so!
Get out of town. Buy a piece of land. Build a snug, passively solar-heated, underground house. Put up a windplant and/or a methane generator and/or your own "farmer's alcohol" distillery and/or other "alternative" energy systems. Construct a solar greenhouse. Grow a garden. Raise chickens and/or rabbits and/or a pig or two. Get a cow or a couple of goats. Become as food and energy self-sufficient as you can . . . NOW!
Improve, increase, and expand your skills. Learn .a trade that will always be in demand . . . especially if society as you've always known it falls completely apart. Start your own business, even if it's just a little part-time enterprise on the side. Stock up on how-to books, plans, manuals, and other guides that really tell you how to provide you and your family with the basics of life. Stash away as many gold and silver coins, bottles of liquor, good tools, repair items, and other real wealth as you can . . . NOW! Even if you don't use them all yourself as our society plunges into the economic chasm that is splitting open beneath our feet, you'll find that such items maintain their value as trade goods no matter how worthless the government's paper IOU's become. Stock up on soap, a year's supply of long-term-storage food for every member of your family, salt, nails, screws, needles, buttons, and all the other big and little things that you'll miss the quickest when they're no longer available. In other words, become as economically self-sufficient as you can . . . NOW!
And, if you don't already have them, lay in some weapons and a good supply of ammunition . . . NOW! Nobody likes to talk about such things but, when worst comes to worst, you're probably going to need them.
And what if — through some miracle (it'll have to be a big one) — things never get that bad? Wonderful! You II still be way ahead of the game. While others continue to battle shrinking dollars and expanding prices . . . while others continue to worry about OPEC oil embargoes and coal miners' strikes . . . while others wonder whether or not the farmers really will refuse to produce food next year . . . while others helplessly watch their rent and heating bills go on up and up and up . . you'll be snug in your underground house, counting the jars of home-canned food in the pantry, and warming your feet on the passively solar-heated living room floor.
As this report went to press, the dollar was hitting new daily lows on all the world's markets. Gold (remember gold . . . the metal that our government guaranteed would always sell for $35 an ounce?) was priced at more than $190 an ounce. Silver had just made its biggest one-day jump in over two years. The Taft-Hartley Act had been invoked but the coal miners' strike — which was starting to take some ugly turns toward violence — still seemed far from over. The U.S. rate of inflation had suddenly ballooned once again to over double-digit levels. And the Swiss — in a desperate effort to stem the flood of worthless dollars into their country (from anxious foreigners who wanted to trade the IOU's for gold-backed Swiss francs) — had, among other equally severe measures, just imposed a crushing 40% annual tax on all large foreign holdings of Swiss francs. Germany was reported to be considering a similar action.
On the oil front, Iranian Finance Minister Mohammad Yeganeh was quoted as saying that he favored a review of OPEC's policy of pricing petroleum in dollars, and newly appointed Oil Minister Shaikh Ali Khalifa AI-Sabah of Kuwait had just announced that he thought all the OPEC nations should attend an emergency meeting to discuss the continued decline of the dollar. (MOTHER's prediction: Everything will be up for grabs overnight when — not "if" — the oil producing countries officially begin pricing their petroleum in something other than dollars.)
In Japan, the Eidal Company — and four affiliates — with total liabilities of three-quarters of a billion dollars had just turned belly-up . . . and a Japanese bank survey reported that "one out of every ten companies listed on the Japanese stock exchange is virtually bankrupt".
Back home, housing starts were reported down 29% in January and all the leading indicators were pointing to the onset of a recession sometime in the second half of 1978 or the first few months of 1979. Meanwhile, the state of California faced a massive tax revolt among its property owners, retail sales were down, the stock market continued its plunge, and profit margins were dropping for companies all across the country.
The only "good" news in the whole financial press, in fact, was a short article in the March 13 issue of Business Week. The piece reported that, thanks to the current skyrocketing rates of taxation . . . as much as $195 billion worth of business (10% of the whole economy) is now conducted "underground". That is: As much as one dollar out of every ten now spent here in the United States is, perhaps, spent in purely cash transactions that never get reported on anyone's tax return. While it is sad to see that the corruption from on high in Washington has now filtered all the way down to undermine U.S. citizens' legendary tax-return honesty . . . it is interesting to note, once again, that the "little guy" still has his ways of fighting "The System" that threatens to crush him.
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