Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Socialism Returns to Haunt United States

Politics / US Politics May 12, 2009 - 06:12 PM GMT

By: John_Browne

Politics

Best Financial Markets Analysis ArticleAmerica is more than a country; it is the ideal of liberty. In economic terms, liberty translates into the entrepreneurial spirit of hard work, risk taking and self-reliance. And this spirit has made America rich beyond compare.


Unfortunately, over the past four decades, much has been undone. Under the guise of a new, “social” justice, political leaders have turned our native ethics upside down. Profit-taking is now seen as gouging; success is greed; businessmen are predators. This creeping socialist transformation of our culture has finally broken the back of the American economy.

The definitive fork in the road occurred in August 1971, when President Nixon ended the U.S. dollar's link to gold. The move allowed the U.S. government to issue money without the restraint imposed by gold-backed currency. For most countries, this would have unleashed a wave of monetary inflation and, consequently, skyrocketing prices. But, since the dollar remained the world's reserve currency, foreign central banks were compelled to subsidize U.S. expenditure, and our inflation was exported overseas.

With global funding secured, Congress offered increasingly generous entitlements to an increasingly dependent population. This has resulted in the decay of America's productive sectors and a massive depletion of accumulated wealth. Now, socialist America subsists on the whims of the capitalist powers of the East. American consumption is dependent on loans from nations who just 40 years ago were economic afterthoughts.

Rather than dissipating their wealth through spending and borrowing, these economies have undertaken the difficult work of wealth creation. Though nominally Communist, China has become an intensely pragmatic state. While Americans have grown complacent about their liberty, China has quietly, but with determination, expanded economic liberty: courts are becoming more efficient, land reform has introduced private ownership, and obstacles to entrepreneurship are decreasing.

Many countries, such as China and Japan, which export massively to the United States, resist converting their U.S. dollar surpluses into domestic currencies. They fear that, in doing so, they will force up their own currency relative to the U.S. dollar, making their exports less competitive. Therefore, they invest the bulk of their surpluses in “secure” U.S. Treasury bonds, satisfying America's appetite for imports and entitlements.

But this logic is economically flawed. Through their actions, Asian governments are transferring their citizens' wealth to the United States. When a Chinese business exports to the U.S., the dollars earned are exchanged in a Chinese bank for local currency. Those dollars are then recycled by the Chinese Central Bank to buy U.S. Treasuries. America then creates more dollars (inflation) so that it can redeem those outstanding Treasuries. This mechanism props up the dollar and holds down the RMB. As a result, the Chinese are poorer and America richer. Unfortunately, many Asian governments are still too collectivist to cease robbing their citizens. If they would do so tomorrow, America would feel the full effects of years of federal profligacy at once.

What happens when half a century of socialism catches up with the “shining city on a hill”? Start with America losing its Triple-A credit rating, then the dollar free-falling, then interest rates rising into double-digits as a last-ditch effort to restore faith, which may lead to civil unrest — and certainly widespread misery.
Already the credibility of the U.S. dollar is being questioned by producer states. Any loss of its privileged “reserve” status would result in rapid diversification out of the U.S. dollar and U.S. Treasuries. In short order, the inflation gingerly spread around the world by the U.S. government would come back home to roost.

The outlook for the U.S. economy appears increasingly bleak. The final window for self-imposed reform has been forsaken, as both Democrats and Republicans have chosen to magnify the mistakes of the past. Huge investment losses experienced by investors worldwide may have forever tarnished the luster of U.S. stocks. Meanwhile, the threat of inflation and bank failure has discouraged domestic savings. Americans looking to preserve their wealth are turning to precious metals, commodities, and foreign shares denominated in the currencies of surplus countries.

Even in its most successful incarnations, socialism is a drag on a successful market economy. The U.S. has been able to have socialist entitlements within a relatively free-market only because the costs were borne by foreigners. But as the global economy strains under increasing weight, look for those funders to begin tending their own gardens.

This U.S. economy is now a runaway train, and anyone who has the courage to look out the window will likely want off. Short of the imposition of U.S. exchange controls (as during the last depression), American investment funds will flow toward countries that fuel their economies with America's depleted resource: liberty.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's new book For an updated look at his investment strategy order a copy of his just released book " The Little Book of Bull Moves in Bear Markets ." Click here to order your copy now .

For a look back at how Peter predicted our current problems read the 2007 bestseller " Crash Proof: How to Profit from the Coming Economic Collapse ." Click here to order a copy today .

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in