World Economic Outlook: Money and the Economy

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Illustration By Fotolia/michelangelus
The world economic outlook column shares information on economic news, this issue covers money and the world economy.

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.

World Economic Outlook

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 foodand 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.

Last Minute Economic News

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.