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The
smarter Buffett shows what'll happen to our savings In a classic analogy Warren Buffett's Dad illustrated the obscure conflict at the heart of our monetary system. In this short article you can read it for yourself, and enjoy a modern footnote which shows - almost as clearly - how to avoid the misery of experiencing first hand the end of a debt explosion. America's national debt is now at about 5 times the per capita value of the national debt which caused Argentina's financial system to implode in 2001. The US debt has been accumulated almost entirely since 1971 when the last controls on currency expansion were dismantled by Nixon. Many people are rightfully concerned. Even the occasional politician has tried to do something about it, but without much success. Suffering under the early phases of this conflict in 1948 Warren Buffett's Dad (who was a senator from Nebraska) memorably compared his role in the US government to a brave but ineffectual fireman: "There is only one way these spending pressures can be halted, and that is to restore the final decision on public spending to the producers of wealth. Taxpayers must regain their right to obtain gold in exchange for the fruits of their labour. This restoration would give the people the final say-so on governmental spending, and would enable wealth producers to control the issuance of paper money and bonds. I do not ask you to accept this contention outright. But if you look at the political facts of life I think you will agree that this is the only genuine cure. There is a parallel between business and politics which quickly illustrates the weakness in political control of money. Each of you is in business to make profits. If your firm does not make profits it goes out of business. If I were to bring a product to you and say this item is splendid for your customers, but you would have to sell it without profit, or even at a loss which would put you out of business, well I would get thrown out of your office, perhaps politely, but certainly quickly. In politics votes have a similar vital importance to an elected official. That situation is not ideal, but it exists. Perhaps you are right now saying to yourself ‘That’s just what I have always thought. The politicians are thinking of votes when they ought to think about the future of the country. What we need is a Congress with some guts. If we elected a Congress with intestinal fortitude it would stop the spending all right’. I went to Washington with exactly that hope and belief. But I have had to discard it as unrealistic. Why? Because an economy Congressman under our printing-press money system is in the position of a fireman running into a burning building with a hose that is not connected to the water. His courage may be commendable, but he is not hooked up right. When the people’s right to restrain public spending by demanding gold coin was taken from them, the automatic flow of strength from the grass roots to enforce economy in Washington was disconnected. Truman’s promises were to be expected under our paper currency system because his continuance in office depends upon pleasing a majority of pressure groups. But it was not always this way. Before 1933 the people themselves had an effective way to demand economy. Before 1933 whenever the people became disturbed over Federal spending they could go to the banks, redeem their paper currency in gold, and wait for common sense to return to Washington." Being ‘hooked up right’, as Mr. Buffett described it, regulated government power by allowing people to demand custody of the private property which underwrote their freedom. If collectively savers were withdrawing backing of government in sufficient numbers to restrain government spending, they were doing so in defence of their own economic freedom, and they were keeping government honest. When they were prevented from withdrawing the support of their money their government began - slowly at first - to spend without restraint. The effects have been falling standards of monetary honesty in public life, the diminution of the worth of money, the theft, by stealth, of the private property of the American people, and the erosion of the liberty which that private property underpinned. Mr. Buffett's wonderfully clear explanation of a difficult subject is often quoted by those who seek a return to a gold standard, but surely they miss the point that was being made. The printing press money system is a one way street with no exits, and our currencies are buses along its length. We jumped aboard, but at the far end of the street the bus emerges back into 'Market Square', which is a no-stopping zone. Most passengers don't understand that the bus cannot stop there. They'll still be on it, arguing unsuccessfully with the bus driver, but the doors will remain closed and the bus will rumble back to the depot on its unchanging route. Mr. Buffetts' fireman showed the position of the honest, elected official. The bus illustrates ours. We can only get off when the doors are opened, and before the bus gets to the square. It will doubtless be raining, and the bus will overtake us while we walk - wet through - to the shops at the market end of the street where the prices are best. The bus will pass them before us, and passengers will look in heated comfort at the deals in the windows. But they will never be able to buy anything. ©
2004 Paul Tustain Articles in the series include:
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