Looking to the Dollar, Gold, and "Mutti" to Save the World

By Alan Caruba

The most formidable couple in the world during the 1980s was Ronald Reagan and British Prime Minister Margaret Thatcher. Thatcher, a conservative and a woman of iron will, must be looking across the Channel with some amusement to see how her German counterpart, Chancellor Angela Merkel, is literally the only person keeping the European economy from collapsing and, it must be said, taking England and America with it.

The cover article of this week’s Business Week noted that “Merkel is the daughter of a Lutheran pastor. She won a PhD for a thesis on quantum chemistry…though childless, she is known as Mutti, for Mother.” Born in the post-war years, “Merkel’s worldview reflects the German desire for stability. Chaos plagued the German-speaking people long before there was a German nation…Later the hyperinflation of the 1920s and Depression of the 1930s, both of which undermined the middle-class, gave rise to Nazism.”

Plainly said, Angela Merkel is showing the rest of the world why Keynesian economics doesn’t work; that governments with huge “entitlement” programs and a tendency to throw vast amounts of money at their problems invite disaster. If Europe does not plunge into chaos, it will be because she refused to bail it out with the deutschmark.

Meanwhile, the Federal Reserve is moving billions to Europe to ease its lending crisis.

If you read just one book this year, I recommend James Rickards’ “Currency Wars: The Making of the Next Global Crisis” ($26.95, Portfolio Penguin). An advisor to the Department of Defense, the U.S. Intelligence community, and major hedge funds on global finance, he brings more than thirty years’ experience to a book that explains what has gone so terribly wrong and why.

Rickards spells out how the U.S. economic system has been gamed over the years to ensure that “elites captured most of that growth in income and profits.” It is the reason we are just learning that many members of Congress have grown wealthy using insider information, an act that would land anyone else in jail.

“Over time and with increasing complexity, returns on investment in society begin to level off and turn negative…Bureaucracies that started out as efficient organizations turn into inefficient obstacles to improvement more concerned with their own perpetuation than with service to society.”

This is a definition of the U.S. Departments of Education, Labor, Housing and Urban Development, Health, and Energy, along with the quintessential monster, the Environmental Protection Agency. For good measure, include Fannie Mae and Freddie Mac, the two mortgage loan agencies.

In a chapter titled “Endgame—Paper, Gold or Chaos?” Rickards looks at the weakness of the U.S. dollar, pointing out that “As the dollar and sterling were trading places in the 1920s and 1930s, there was never a time when at least one was not anchored to gold.”

“Gold is not a commodity. Gold is not an investment. Gold is money par excellence. It is truly scarce—all the gold ever produced in history would fit in a cube of twenty meters (about sixty feet) on each side, approximately the size of a small suburban office building.”

“Today, under Bernanke’s guidance, the United States is trying to do what England did in 1931—devalue…What is happening instead is that all the major currencies are devaluing against gold at once. The result is global commodity inflation, so that beggar-thy-neighbor has been replaced with beggar-the-world.”

Rickards’ book is a warning against what we are witnessing. “Perhaps the most likely outcome of the currency wars and the debasement of the dollar is a chaotic, catastrophic collapse of investor confidence resulting in emergency measures by governments to maintain some semblance of a functioning system of money, trade and investment.”

The two currency wars of the last century led to two world wars. Rickards warns that “The path of the dollar is unsustainable and therefore the dollar will not be sustained.” A return to the gold standard “offers the best chance of stability.”

Rickards recommends that the big banks be required to become smaller and that derivatives be banned because “they serve banks and dealers through high fees and poorly understood terms.” Derivatives are contracts between two parties that define the value of underlying variables. The “bundling” of mortgages that were then sold as assets is an example and, as the financial crisis revealed, their value was dubious at best, criminal at worst.

“The dollar,” says Rickards, “for all its faults and weaknesses, is the pivot of the entire global system of currencies, stocks, bonds, derivatives and investments of all kinds. It is the store of economic value in a nation whose moral values are historically exceptional and therefore a light to the world. The debasement of the dollar cannot proceed without the debasement of those values and that exceptionalism.”

The coming national election will be a choice between a President who does not believe the United States of America is exceptional and whoever the Republican Party selects to help the nation return to its fundamental values.

© Alan Caruba, 2011

Obama is Determined to Destroy America

By Alan Caruba

It is astonishing that Barack Obama seemingly learned nothing from the 2010 national elections in which the Republicans regained control of the House with a net total of 63 seats. For the Democrats it represented the greatest loss in the House midterm election since 1938, which occurred nearly ten years into the Great Depression.

It is the House that determines the spending and borrowing to maintain the nation, though the President traditionally sends a budget. Obama did not. Indeed, as Speaker of the House, John Boehner, has said, Obama has never put anything on paper. Negotiating Obama's demands have changed week to week and now day to day.

What has happened to “No drama Obama”? The present impasse, topped by an angry press conference late Friday afternoon is entirely of his making. Neither the White House, nor the Democrats in Congress have put forth any plans, let alone any numbers, other than to propose tax increases, now euphemistically called “revenue” increases.

The 2010 Democrat losses in the House are largely attributed to the passage of Obamacare, a piece of legislation that was not only widely protested, but that led to the Tea Party movement and new members of the House representing its common sense agenda. The House subsequently voted to repeal Obamacare and it is being contested in the courts by 26 States.

What Americans have witnessed over the first two years of his term is Obama’s continual blaming of all problems on either his predecessor or the Republicans in Congress. What they are witnessing is the duplicity of a man who appears incapable of telling the truth from day to day.

The nation is in for a week of “high drama”, all of which could have been avoided had Obama agreed to any of the proposals put foreword by Republicans from Paul Ryan to members of the so-called “gang of six.” In the Democrat controlled Senate there has been nothing but obstruction.

One senses that this is exactly what Obama wants. While saying he does not want the U.S. to default on its obligations, what better way to destroy the nation than to destroy its “full faith and credit” regarding its debts?

The emphasis the Founding Fathers put on the necessity to meet the nation’s debts can be found in Article VI of the Constitution. “All debts contracted and engagements entered into, before the adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation.”

Article I, section 7, states “All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with amendments as on other Bills.”

There is no mystery as to how the U.S. can recover from the present recession. Government spending must be reduced. Tax rates must be reduced for corporations and the middle class to encourage investment, growth and more employment. Entitlement programs will have to be revised to ensure they can meet their obligations. They represent sixty percent of all government expenditures.

A government that must borrow forty cents of every dollar to pay its debts and whose current debt of $14 trillion equals the entire annual gross domestic product of the nation is endangering the present and future economy for present and future generations of Americans.

At this writing, it looks as if Obama intends to deliberately implode the nation’s ability to meet its obligations and he has used the most raw fear tactics to achieve his goal, falsely claiming that Social Security checks would not be sent, that the military would not be paid.

If ever a President was begging for impeachment the time for such action has arrived. The evidence that he was ineligible to run for office and to hold it is beyond question, if only because he was not a “natural born” American whose both parents were citizens. His father was a citizen of Kenya.

Raise the debt ceiling. Impeach Obama. America must be set free. What he is attempting to bring about is the worst “change” imaginable in the nation’s history.

© Alan Caruba, 2011

Destroying the Dollar

By Alan Caruba

Something I never thought I would ever see in my former hometown, a wealthy New Jersey suburb of New York City, was a Dollar Store, but one opened recently in a former supermarket. Dollar Stores are giving Wal-Mart, Target, and similar outlets a run for their money and it’s not hard to see why. The local one has just about everything you could need and all for astonishing low prices.

In countless ways people are looking to save money these days. The looming problem, however, is the question of what happens when Americans wake up to learn that even a dollar can no longer buy anything?

“When Faith in U.S. Dollars and U.S. Debt is Dead the Game is over – And that Day is Closer than You May Think” is the cheery title of an article recently posted on EconomicCollapse.com.

There’s a reason why both the mental condition and the financial condition are called a Depression. It’s hard to be happy about anything when your nation’s currency is not worth the paper on which it is printed. The Federal Reserve’s answer, some fear, is to print more money and to continue to buy U.S. debt with it. It is doubtful, however, this Ponzi scheme will continue.

There isn’t a day that goes by when some U.S. government agency doesn’t send me a news release to announce that it is giving millions for something and, if our elected leaders are negotiating a solution to this insane spending and giving, there is precious little evidence of it.

New unemployment numbers are up. The administration continues to churn out thousands of pages of new regulations. It has stalled the energy sector from oil and gas exploration that could create thousands of jobs. And China is divesting itself of U.S. securities, anticipating a bad outcome for our economy.

Meanwhile, the so-called “entitlement” programs represent sixty percent of all the money the government spends. Without some changes, these programs are unsustainable. The Democrats’ answer is to depict Republicans as wanting to kill grandma.

The Gross Domestic Product

In a Mid-May article posted on American Thinker.com, Randal Hoven spelled out a number of facts that are overlooked in the political battles between liberals and conservatives. “The entire debate is about a difference that is less than 4% of GDP. According to International Monetary Fund figures, government in the U.S. is spending 41% of GDP in 2011. The current debate is about whether government spends 40% or 44% of GDP.”

The government is absorbing far too much of the Gross Domestic Product for its own purposes. We are in a league shared by Greece and other nations with a serious financial crisis.

While the federal and state governments plunders every cent they can extract from those still fortunate to have a job, any investments, or will die at some point, both Republicans and Democrats have participated in expanding government since the last Great Depression.

While President Obama’s constant blaming of George W. Bush for his first two years became a joke, Hoven notes that Bush expanded Medicare with a prescription program and many of the “liberal” programs we conservatives denounce occurred while Bush was president. “No Child Left Behind”? Bush. Outlawing light bulbs? Bush. Ethanol subsidies? Bush.

The absurdity of President Obama’s mantra that millionaires and billionaires be taxed more ignores the fact that such taxes, even if we took all of their money, would barely cover the rate at which government spends and wastes such income.

While negotiations, we’re told, are occurring or will, the greatest impediment is Obama’s open disdain and dislike for Republicans. This cannot be underestimated in terms of finding a solution.

At the heart of our current problems is that, having inherited a financial crisis, Obama devoted the last two years to a government takeover of both the health care industry and the financial sector with two bills, each of which exceeded 2,000 pages and vastly expanded government bureaucracy.

More government control of the economy is the last thing this nation needs at this time. Or any time.

Social Security will be insolvent by 2037 and, together with Medicare, they have unfunded liabilities of $107 trillion in today’s dollars. That is seven times the size of the U.S. economy and ten times the size of the national debt.

The real problem for the United States is the falling confidence and faith in the U.S. dollar. It is the default reserve currency of the world. Just about everything trades in U.S. dollars. It’s not only Americans losing faith in our government’s ability to maintain its value, it is everyone else.

In April, Standard & Poor’s downgraded its outlook on U.S. government debt from “stable” to “negative.” It warned that the U.S. could lose its prized AAA rating. Unless Congress and the current occupant of the White House take specific steps to fix Social Security and Medicare, the dollar compared to other major national currencies will continue to fall. It has fallen 17% since 2009. Moody’s rating service has also issued its own warning.

Pretty soon, nobody will want to buy U.S. securities used to currently borrow 41 cents of every dollar the government spends. The U.S. borrows about $168 million every single hour.

In April, CNSnews reported that “the federal government made $125 billion in ‘improper payments’ in fiscal 2010, more than eleven times the total 2010 spending by the U.S. State Department.”

That’s a government that doesn’t know what it’s doing and isn’t in a hurry to fix it.

That’s why a Dollar Store just opened in one of the most affluent suburbs of New Jersey.

I know the economists and others keep saying that the Recession that began in 2007, ended in 2009. I know they can and will cite all manner of good economic indicators, but if faith in the U.S. dollar continues to falter, it won’t matter.

© Alan Caruba, 2011

Obama's Budget Speech Bombs

h/t to TerrellAfterMath.com

Raising Taxes is a Very Old, Very Bad Idea

By Alan Caruba

The absurdity of raising taxes in the midst of a recession that increasingly looks and feels like a depression only underscores the Democrat’s historic and failed policies from the past; the same ones they continue to push these days.

In “New Deal or Raw Deal? How FDR’s Economic Legacy has Damaged America”, historian Burton Folsom, Jr., examined the many ways the Great Depression was prolonged and deepened. In his first week in office, Roosevelt took America off the gold standard and “issued an executive order, under penalty of a fine or a prison term, forcing Americans to surrender all their gold to the U.S. government in return for paper dollars.”

Today, in an era of economic uncertainty, the television airwaves are filled with advertisements to buy gold.

Roosevelt was all about high taxation while portraying himself as a friend of the people and an enemy of “economic royalists”, by which he meant business, industry, banks and Wall Street. Historians and economists point to FDR’s tax policies for the failure of the nation to recover from the Great Depression. By 1936, the new tax rate started at 5% on low income taxpayers and skyrocketed to 79% on top incomes.

The Great Depression began in October 1929 when the stock market crashed. A year later my older brother was born. Our father was a Certified Public Accountant, a profession people need in good times and bad. The experience of the Depression left an indelible impression on both my parents.

My Father never bought any stock. His biggest investment was the home he bought in 1942 in a posh New Jersey suburb. My Mother used to tell me of the large bill they ran up at the butcher’s during the Depression. World War Two imposed strict rationing because food and other items were scarce. In all the years after the war our refrigerator was always kept filled with food. Those memories imprint themselves on people.

I don’t think there is much historical or institutional memory left in America. The educational system, the media, and what passes for news these days has erased “the way it was” for most Americans in that era. Only the senior citizens and their children recall it. The nation, however, is repeating all the previous errors.

It is difficult to believe that the nation is on the brink of financial collapse, but it is.

Not surprisingly President Obama and the Democratic Party want to tax more, particularly “the rich.” Efforts to cut spending and reduce the size of a bloated federal government are fought by Democrats even if cutting a few billion is a teaspoon in an ocean of debt

Robert Williams of the Tax Policy Institute was interviewed on an April 14th National Public Radio program. Using 2009 as his baseline, he pointed out that “about 47 percent of Americans will not pay any federal income tax for 2009.” They included families with children, the elderly, low income households, and those who benefit from all the deductions, credits, and exemptions in the income tax.

People with incomes over $500,000, said Williams, represent about 24% of tax revenues collected and those earning a bit above $100,000 represent about 56% of all income and pay about 70% of all taxes. “About 75% to 80% of us pay more payroll tax than income tax.” Taxing the rich instead of instituting a fair tax, based on consumption, is a very bad idea.

In a collection of essays from his popular blog, The Daily Reckoning, Bill Bonner’s latest book “Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas” provides a wealth of insight regarding the way the Federal Reserve and other central bankers have created financial havoc since 1913.

Writing in February 2011, Bonner said, “Probably the most remarkable proposition of the whole decade came into focus in the past six months. It was the idea that the Fed could spur a recovery by creating money out of thin air.” This is what is meant when you hear the term “quantitative easing.”

QE, by November 2010, had added $2.3 trillion to the nation’s monetary supply. Fed Chairman Ben Bernanke, a reputed expert on the Great Depression, added three times as many dollars to America’s core money supply as all the Treasury secretaries and Fed chairmen who came before him put together!


There is and always has been only one way money retains confidence and that is by manufacturing and selling goods and services. Therein lies true value, not the idiocy of simply printing dollars.

“In 1913,” notes Bonner, “the dollar was worth about the same thing it had been worth 100 years before. Now, almost a hundred years later, it is worth only three cents.”

Bonner noted that “The Great Depression may have been an accident, but the debasement of the dollar certainly was not. It was a matter of policy...The gold standard stood in the way; it was abandoned like a bad neighborhood”; a policy completed under President Nixon in 1971.

Writing on July 30, 2010, Bonner said, “Mainstream opinion is contradicted by the facts. Fewer people are employed today in the United States than when the stimulus program began. Sales are down. Growth is failing. Credit is contracting. Even hairstylists and cab drivers know something is wrong.”

John Maynard Keynes: the economist whose theories FDR and other administrations have based their policies upon, “thought consumer spending was the key to prosperity; he saw savings as a threat. He had it backward. Consumer spending is made possible by savings, investment, and hard work—not the other way around.”

“We remind readers,” Bonner wrote in 2003, well before the 2008 financial crisis, “when the Fed creates money out of thin air, it does not create any corresponding wealth. The world’s supply of services or swimming pools does not magically increase when Ben Bernanke turns up the dial on the printing press. What it does is create an illusion of wealth.”

That illusion, that nightmare is now understood by a majority of Americans who also understand that the President they elected in 2008 has been focused on expanding government ownership and control of vast elements of the economy from General Motors to AIG to the nation’s health system.

And now the President wants to raise taxes. It is as if nothing was learned from the Great Depression, from the entire history of the New Deal, and from the collapse of the communist Soviet Union in 1991.

© Alan Caruba, 2011

Wheat, the Stuff of Revolutions

By Alan Caruba

In a recent column, Lawrence Kudlow, an economist and popular radio host, opined that “the sinking dollar and skyrocketing food prices (may have) triggered the massive unrest now occurring in Egypt—or the greater Arab world for that matter.”

When barely two percent of America’s population is engaged in agriculture, growing the crops we eat or that is fed to livestock, it is perhaps understandable that the other 98% has no clue how all that food shows up in their supermarkets and restaurants.

Methinks that the turmoil we are witnessing in Middle Eastern nations derives more from the rumblings in empty bellies than in any real concern for human rights.

Historically, food is the stuff of revolutions. It was the origin of the French revolution that toppled the monarchy and, as we watch the Middle East and the Maghreb nations of northern Africa, it was food that was the match that set off the present popular demonstrations against dictatorships of varying description.

The monthly edition of Wheat Life, a publication of the Washington Association of Wheat Growers, always features a look at the status of the “wide world of wheat.” It is particularly instructive this month.

“There’s a reason governments make every effort to keep food affordable. Just ask the deposed president of Tunisia, Zine El Abidine Ben Ali. A popular uprising in the mostly desert country of 10 million was sparked by the self-immolation of a man who was arrested for selling vegetables without a license as well as rising prices, particularly bread.” Ben Ali was sent packing after decades of tight-fisted control.

The price of food along with his thirty years of control toppled Egypt’s Mubarack. As Kudlow noted, the mainstream media are so focused on the turmoil in the streets that it is “overlooking the impact of rising inflation, driven mainly by record food prices.” Egypt is the world’s largest wheat importer but “Egyptian inflation is now over 10 percent while some experts estimate that Egyptian food inflation has risen as much as 20 percent.”

Much of the world’s inflationary woes come right back to actions being taken here in the United States. “Commodities are priced in dollars, and the Federal Reserve has been overproducing dollars for more than two years." As the value of the dollar declines, it drives up the cost of everything everywhere. The rise in food costs said Kudlow is “a global phenomenon. It is a monetary phenomenon as much as anything.”

“In dollar terms,” noted Kudlow, “ the price of wheat has soared 114 percent over the past year. Corn has surged 88 percent. These are incredible numbers.” There is a reason for the increase in corn prices and it is the United States’ idiotic and insane mandate that ethanol, made from corn, be added to every gallon of gasoline. There is no justifiable reason for ethanol.

A look around the world also shows how Mother Nature is playing her role in the availability—or lack of it—of wheat. Do not fall for the “climate change” blather that hides the global warming fraud. Droughts and deluges alike are a normal part of the Earth’s weather and quite beyond the control of dictators or democracies.

In Russia, drought cut the 2010 wheat production of wheat by a third. Its government declared a moratorium on exports until the 2011 harvest. By contrast, China has had seven years of rising wheat harvests, but Chinese agricultural experts worry that grain production is increasingly concentrated in the water-scarce northern region of the nation.

So, while people around the world watch the Middle Eastern turmoil in the streets, it is factors such as the declining value of the U.S. dollar, the U.S. ethanol policies, and Mother Nature that are driving revolution.

A government that cannot affordably feed its people, it will not last for long.

© Alan Caruba, 2011