While housing prices deflate, energy and food prices continue to rise. Statistics from last year show what has happened. During 2007 gasoline prices rose 29.6 percent and food was up almost 5 percent. The dollar is losing its value overseas. Consequently, there has also been a considerable rise in the price of gold. But this is not all. After an unprecedented credit expansion, bubbles are bursting. The Wall Street Journal carried a story on Tuesday with the headline, “Stocks Poised to Take Heavy Losses.” This ongoing train wreck has political as well as geo-strategic consequences.
Many years ago, the Austrian economist Ludwig von Mises wrote: “deflation and contraction are less likely to spread havoc than inflation and expansion.” The reason, he said, was due to their “inherent effects.” Inflation and expansion squander scarce factors of production through malinvestment and over-consumption. “If it once comes to an end,” he stated, “a tedious process of recovery is needed in order to wipe out the impoverishment it has left behind.” If I understand recent events, what U.S. policy-makers and the Federal Reserve have done is postpone the “tedious process of recovery” because we don’t think it is necessary. By continuing to inflate and expand we have maintained a regime of malinvestment and over-consumption to the point of damaging the country’s long-term economic prospects. In other words, the period 1987 to 2007 signifies an economic hollowing out.
In fact, the general prosperity of the United States, lasting more than half a century, has coincided with the destruction of traditional moral values, the breakdown of the family, a weakening of community, the degradation of intellectual culture, the fraud of our public schools, and the splintering of American culture. The most basic political questions are no longer asked or answered by politicians. Since the country became a shopping mall regime, politics has been about the redistribution of income with the assumption of ongoing prosperity. In other words, we have sacrificed our children’s future, our national security and our common sense to the shopping mall gods – to hedonism and a destructive series of assaults on authority (i.e., patriarchy). As a nation, Americans have turned to hedonism, solipsism and narcissism. This turning has been objectively measured by social scientists like Jean Twenge.
Now the economic crisis develops, with a political crisis following close on its heels. Loosely paraphrasing Richard Nixon, “We are all Keynesians now.” For that matter, why not print money and give it away by the truckload? Don’t’ think we haven’t already done it. Look at the government’s proposed stimulus package. Look at government spending at every level. The generational crisis follows the ancient Roman pattern: each generation believes it must live better than the previous generation. Inevitably a generation arises that lives better by living indebt. When the debt becomes unmanageable the political system comes unglued. But there is something more to this, as well.
In Wednesday’s “Wall Street Journal,” Bill Wilby’s column “The Dollar and the Market Mess” begins with a quote from John Maynard Keynes: “Lenin was surely right. There is no subtler, no surer means of overturning society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Wilby noted that currency debasement is the worst of all worlds because there are negative strategic implications as well. “Oil traders know this,” he explained, “and it is why the immediate consequence of the Fed’s earlier 50-basis-point cut was to take the dollar down and oil prices up. One could write a separate essay on what a lower dollar and higher oil prices do to our strategic interests, such as propping up regimes like those in Iran and Russia.”
It goes far beyond propping Iran and Russia, however. The Kremlin routinely plunders the Russian economy for the sake of military spending and autocratic power. The same instinct that drives this plundering activity also leads to a predatory policy abroad. The American side is being pressured, through the action of several factors, to acquiesce in the collapse of the dollar. The Russian side wants to encourage this collapse, and exploit it – even build on it. From moment to moment it is the least painful path. The hedonist chooses this path because he cannot bear to choose the other path – involving what Mises called “a tedious process of recovery.” The dollar grows weaker and weaker. In the Great Game, Russia grows stronger and stronger. As an astute observer recently noted, Russia could launch “a coordinated attack against overseas markets.” Does anyone know how many American or European companies are partly or majority owned by Chinese or Russian interests? Has anyone considered that these “interests” may be connected to the Chinese and Russian security services?
Inflation in the United States means a weaker dollar, and a weaker dollar means a weakened United States. It also means more tanks and jet fighters and missiles for Moscow and Beijing. As America sinks in self-absorption, Russia and China look outward. The suffering of the Russian and Chinese people is centuries old. They are adapted to suffering, but America has adapted itself to hedonistic expectations. In an attempt to cling to prosperity, America is ready to let go of its defenses.
