“Three Steps to Save America from Collapse”
Wednesday, June 26, 2019 21:09
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“Three Steps to Save America from Collapse”
by Brian Maher
“The cost of every pleasure” — as the great Buddha probably never said — “is the pain that succeeds it.” If true… the United States economy is in for a dreadful thumping.
Come July, the present 10-year expansion will rank history’s longest. The stock market has tripled in value over that same space… and once again floats near record heights. Meantime, American household wealth trounces all previous records. It recently swelled to a record 535% of GDP. The historic average since 1952… is 384%. That is, today’s household wealth-to-GDP ratio rises some 50% above the post-WWII average.
It exceeds even the preposterous and dizzied heights of 1999 and 2006 — shortly before terrific plummetings:
Click image for larger size.
But this prolonged delirium merely extends a larger trend… The last four expansions rank among the six longest in the history of the United States. Can we credit the kindly and nurturing influence of the central bank?
The Federal Reserve wriggled out of its golden handcuffs in 1971, sledgehammered them into millions of pieces… and seized immediate control of the printing press. It has had the same printing press running in high gear ever since — with few interruptions. In 1970 — the year before Nixon scissored the dollar’s final golden tether — public debt totaled $275 billion. Or in today’s dollars, $1.8 trillion.
U.S. public debt today exceeds $22.4 trillion… and expands with each tick of the merciless and punishing clock. The following chart goes into evidence:
Click image for larger size.
And in the official telling, the Federal Reserve has tamed the business cycle because of it. MarketWatch: “Prolonged expansions have become the norm since the early 1970s, when the tight link between the dollar and gold was broken. The last four expansions are among the six longest in U.S. history.”
Why so? Freed from the constraints of gold-backed currency, governments and central banks have grown far more aggressive in combating downturns. They’ve boosted spending, slashed interest rates or taken other unorthodox steps to stimulate the economy. Like the gutter tosspot woozied by the false seductions of the bottle… the deadbeat economy goes along on artificial and temporary stimulant.
But as Deutsche Bank strategy men Jim Reid and Craig Nicol argue — in understatement perhaps — “There has been a cost.”
That cost is a system increasingly “prone to crisis”: “This policy flexibility and longer business cycle era has led to higher structural budget deficits, higher private sector and government debt, lower and lower interest rates, negative real yields, inflated financial asset valuations, much lower defaults (ultra-cheap funding), less creative destruction and a financial system that is prone to crises.
In fact, we’ve created an environment where recessions are a global systemic risk. As such, the authorities have become even more encouraged to prevent them… So we think cycles continue to be extended at a cost of increasing debt, more money printing and increasing financial market instability”.
Watch out when all scales balance, all accounts are squared… and the cycle completes. A heavy account already lies against us… The United States government has since borrowed some $11.6 trillion since the financial crisis alone. Yet the American economy expanded only $5.1 trillion. In words other, GDP has increased 35%. But the national debt has risen 122%.
Meantime, the Congressional Budget Office projects annual GDP will peg along at an average 1.9% over the next decade. But debt is piling on at 6% per year. At what point does debt cease to stimulate at all?
Economists Carmen Reinhart and Kenneth Rogoff have demonstrated that annual economic growth slips 2% once debt-to-GDP scales 60%. When it strikes 90%… growth is “roughly cut in half.” The United States’ debt-to-GDP ratio eclipsed 90% in 2010. It presently rises to 105%.
Meantime, the stock market jogs far ahead of the economy it theoretically reflects. Emerging from the lost decade of the 1970s, United States GDP ran to some $2.8 trillion in 1980. Total market cap of the stock market equaled perhaps $1 trillion. That is, the stock market substantially lagged the economy.
Now come forward… Today’s GDP is $21 trillion — roughly eight times 1980 GDP. But at $30 trillion… today’s total market cap is 30 times greater. And the stock market presently enjoys a nearly 50% lead over the underlying economy.
When will the scales of economic justice reverse once again? We have no answer, of course. But the stock market will likely get a good hard lacing once they do… We have recently hauled forth evidence that the Dow Jones could plummet 35.3% come the next bear market. And the Federal Reserve may well be out of tricks next time around.
We thus conclude where we began… The cost of every pleasure is the pain that succeeds it…
Below, George Gilder shows you three steps he believes could save America from collapse — if anybody listens. What are they? Read on.”
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“Three Steps to Save America from Collapse”
By George Gilder
“Our monetary system is broken. It’s given us low growth, a shrinking job force, inequality beyond what a healthy economy would produce, inefficiency, and the unnatural growth of finance as a portion of the economy. Our aging Federal Reserve System starves both small businesses and Silicon Valley of the capital needed to grow jobs and wages. Fed policy translates into zero-interest-rate loans for the government and its cronies, and little or nothing for savers or small businesses. And it has transformed Wall Street from an engine of innovation into a servant of government power.
But I believe America can be set on the right path towards a robust and broadly shared capitalism again with just three steps.
Step 1: Abolish Capital Gains Tax on Currencies: This country already allows gold currency. The Treasury mints millions of one-ounce silver eagle dollars that are worth more than twenty dollars apiece and one-ounce gold eagle fifty-dollar pieces that are worth $1,150 apiece. Virtually all of these are hoarded.
Though it has been legal since 1987 to use them at their metallic value, that route leads to a capital gains tax on their appreciation. Since the appreciation of a gold or silver piece is by reasonable definition all inflation, the tax is simple confiscation (like all capital gains taxes on spurious inflationary profits). The move of gold and silver coins into circulation would offer a corrective of constitutional money for any dollar debauchery by the Fed.
Step 2: Remove Obstacles to Alternative Forms of Money: Despite imprudent governmental interference, the internet remains a bastion of American power, with U.S. companies such as Apple, Google, Amazon, Microsoft, Facebook, eBay, Cisco, Qualcomm, and scores of others capturing the bulk of all internet revenues.
The internet plays a central role in the American economy. But there is a profound flaw in its architecture, as I have explained before. It was designed for communications, not transactions. Around the globe, transactions are shifting toward the internet. Although online purchases remain between 6-7% of all commerce, internet trade is expanding rapidly.
But to buy something on the Internet, you often have to give the supplier sufficient information — credit card number, expiration date, address, security code, mother’s maiden name, and so on — to defraud you or even to steal your identity. This information therefore has to be protected at high cost in firewalled central repositories and private networks, which are irresistible targets for hackers.
With transactional overhead dominated by offline financial infrastructure, micropayments are uneconomic, and the internet fills with fake offers, bogus contracts, and pop-up hustles. Some 36% of web pages are bogus, emitted by bots to snare information from unwary surfers.
The internet today desperately needs a new trusted and secure payment method that conforms to the shape and reach of global networking and commerce. It should eliminate the constant exchanges of floating currencies, more volatile than the global economy that they supposedly measure. It should be capable of transactions of all sizes. And it should partake of the same monetary sources of stable value that characterize gold.
The new system should be distributed as far as internet devices are distributed: a dispersed organization based on peer-to-peer links between users, rather than a centralized hierarchy based on national financial institutions. Fortunately such a payment system has already been invented. It is set to become a new facet of internet infrastructure. It is called the bitcoin blockchain.
The bitcoin blockchain is already in place. It functions peer-to-peer without the need for outside trusted third parties. And it follows theorist Nick Szabo’s precursor, bitgold. Its value, like gold’s, is ultimately based on the scarcity of time. Even if bitcoin proves flawed, scores of companies are developing alternatives based on the essential blockchain innovation that can serve as a successful transactions medium for digital commerce. The existence of such a system would enable sellers on the internet, such as content producers, to name their own prices and collect their funds directly.
And the very process that validates the transaction would prohibit spam. There would be no hassle of bartering content for advertising revenues at some aggregator such as Google. Aggregators with advertising clout would merely add inefficiency to an automated system that minimize transaction costs. The internet would have a money system of its own.
With a low market price for goods and services — Google and other players could charge millicents for their services and still make a mint — the internet economy would transcend its current den of thieves and hustlers. It could attain its promise as a frictionless facilitator of human creativity rather than as a channel of chicanery. Its markets would impel the world toward new realms of knowledge and wealth.
But the success of a new global standard of value on the internet entails a ban on taxation of internet currencies. If only government currencies escape taxation, alternative currencies such as bitcoin will always be relegated to niches.
Anyone serious about the reform of money must start by eliminating government obstruction of actual money.
Step 3: Fix the Dollar: That brings us to the third step: fixing the U.S. dollar. How do we do this? Monetary scholar Judy Shelton already devised a play. The chief instrument would be the creation of Treasury Trust Bonds — five-year Treasuries redeemable in either dollars or gold. They could be enacted either through legislation or as a Treasury initiative.
Legislation would specifically authorize the issuance of five-year Treasury securities that pay no interest, but provide for payment of principal at maturity in either ounces of gold or the face value of the security, at the option of the holder. The instrument would be an obligation of the U.S. government to redeem the nominal value (“face value”) in terms of a precise weight of gold stipulated in advance or the dollar amount established as the monetary equivalent. The rate of convertibility (in gold grams) is permanent throughout the life of the bond; it defines the gold value of the dollar.
As Alan Greenspan declared in the Wall Street Journal during the previous era of monetary turmoil, in 1981: “In years past a desire to return to a monetary system based on gold was perceived as nostalgia for an era when times were simpler, problems less complex and the world not threatened with nuclear annihilation. But after a decade of destabilizing inflation and economic stagnation, the restoration of a gold standard has become an issue that is clearly rising on the economic policy agenda.”
In fact, Greenspan suggested that “Shelton bonds” would pave the path to the future… “The degree of success of restoring long-term fiscal confidence will show up clearly in the yield spreads between gold and fiat dollar obligations of the same maturities. Full convertibility would require that the yield spread for all maturities virtually disappear.”
Of course, as Fed chairman, Greenspan went on to become a major maestro of monopoly money at the Fed. And in his subsequent books he expressed many regrets and misgivings about the nature and role of central banks. But in an era of new monetary turmoil, Shelton bonds still have traction. In addition, as bitcoin blockchain innovations spread through the internet, borrowers could also issue bonds with a bitcoin payoff. So new systems based on gold and blockchain innovations can evolve into a new world monetary infrastructure.
These are the three steps that can restore integrity to the monetary system. As I explained yesterday, this is how we can save Main Street from the menace of monopoly money, transcend the dismal science of stagnation and decline, and restore the American mission and dream.”
Interesting ideas, food for thought at least.
But if you think any of that will ever be implemented, you’re dreaming…
Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2019/06/three-steps-to-save-america-from.html
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