It is lack of honesty and intellectual integrity that now accelerates America's demise. Americans ought to know better. We ought to be adults who understand that falsifying reality won't work. The enemies of the United States have watched and waited for a fatal flaw to emerge. And now, at long last, the corruption of the American character through too many decades of prosperity has opened the way. The people of the United States have lost sight of the truth. They have forgotten that the world is underpinned by economic hardship and war. The United States came to think of itself as exempt from this underpinning. But no nation is exempt. No nation can escape the grim realities of this world or the severe consequences of downplaying and dismissing these realities. Economic hardship and war are coming to America.
We must not suffer a recession, say the Americans. We cannot support a war, even in the defense of our own long-term interests because our country has no interests worth dying for. Let the dollar fall. Let our enemies take the oil fields. What will the world do against us? They must export to us, they must send oil to us; they must eat our bonds, our treasury notes, our worthless paper currency. This is how it has always been. This is how it must always be. If the Russians are deploying bombers and making dry runs at the American homeland, we do not care. Let them play their silly war games. We aren't alarmed. If British intelligence has detected Chinese preparations for a surprise attack against the U.S. Navy, let us pronounce a decided "HO HUM" and go about our business. Let us shop until we drop. Let us watch cable television until the rest of the world sinks out of sight. Why should we contemplate the boozy Russian or the desperate Chinese? Why should the distant hovel interest us? We are fat from eating, and our eyes are glazed from entertainment.
But trouble comes. The enemy appears. The international position of trust, once held by the United States, is gradually lost through a series of abuses. Self-deluded and ignorant men have taken the helm, and they have set intellectual integrity aside. At long last the United States attempts to stave off a second Great Depression by yet another round of credit inflation. Only this time it isn't going to work. America's enemies have been preparing. Their propaganda machine has succeeded, and their guerrilla tactics in the Middle East have had a demoralizing impact. The American side grows weaker day to day.
The United States imports much of what it needs from other countries, including oil and natural gas. In exchange, the Americans now export inflation. This is an abuse, a patent fraud, and the world begins to lose its patience. Facing the prospect of deflation, the prospect of economic meltdown, the financial managers of America have decided to re-inflate. They have decided to hurt all those who hold dollars abroad. In doing so, they have invited a counter-attack. They have invited the dollar's total destruction. Without realizing the seriousness of their move, they have opened the way to global economic chaos and open warfare. The enemies of the United States now what is happening. They have waited long and patiently, sharpening their weapons. The Russians, Chinese, Iranians, Syrians, North Koreans, etc. are in it together. Add to these the Communists in Cuba and Venezuela. And do not forget America's domestic malcontents. Revolution is not simply a slogan. It is the essence of today's anti-American religion.
The United States once held an international position of trust, and that trust has been abused. We say to ourselves that another drop in interest rates and we'll avoid a recession. We'll avoid the pain we're due to suffer. Many decades ago the great economist, Ludwig von Mises, noted that a "drop in interest rates falsifies the businessman's calculation." The change in rates makes "some projects appear profitable and realizable which a correct calculation, based on an interest rate not manipulated by credit expansion, would have shown as unrealizable." First there was a stock market boom, then came a real estate boom, and now we have to wonder what kind of boom we'll see next. Perhaps it will be a "crack-up boom." The United States has gotten away with financial abuses for a long time because the dollar is the international reserve currency. But the outside world is not stupid. They see that their investment in the dollar has resulted in a massive loss. The Chinese, Saudis, Japanese and British are losing trillions in buying power. The dollar's decline is now accelerating, with massive consequences for all.
If you were an enemy of the United States, wouldn't you take advantage of this opportunity?
Economic prosperity based on the inflation of credit, said Mises, "can only last as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market." In real life there are no ever-filled purses. The magic of inflation isn't magic after all. Over time a system based on inflation is destroyed through a process of self-attrition. Inflation cannot go on forever, noted Mises. Barriers exist that will inevitably prevent a boundless credit expansion. In the case of a prolonged and outrageous expansion, in which major threats to prosperity are answered with inflation, a breakup of the entire monetary system is indicated. In the wake of a serious credit expansion, says Mises, "The banks are faced with an increased demand for loans and advances on the part of business. The entrepreneurs are prepared to borrow money at higher gross rates of interest. They go on borrowing in spite of the fact that banks charge more interest." Businessmen become addicted to credit, and the addiction leads to destructive behaviors. The banks find themselves in a credit crunch, and the only way to avoid real pain is a further injection of the original narcotic. Like a drug addict, the financial system must get another dose of lower interest rates. According to Mises, "They fail to see that in injecting more and more fiduciary media into the market they are in fact kindling the boom. It is the continuous increase in the supply of the fiduciary media that produces, feeds, and accelerates the boom." And this eventually leads to what Mises calls a "crack-up boom." As he further explained, "The credit expansion boom is built on the sands of banknotes and deposits. It must collapse."
If the banks become frightened, the whole thing collapses in deflation. If the boom is pumped endlessly, the end must nonetheless come, said Mises, because any attempt to substitute additional fiduciary media for nonexistent capital goods is doomed to failure. "If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders." Think of what he is saying: The flight into real values cannot be prevented. Reality intrudes on the dreamer and his eyes are opened. According to Mises, "As soon as the afflux of additional fiduciary media comes to an end, the airy castle of the boom collapses. The entrepreneurs must restrict their activities because they lack the funds for their continuation on the exaggerated scale. Prices drop suddenly because these distressed firms try to obtain cash by throwing inventories on the market dirt cheap. Factories are closed, the continuation of construction projects in progress is halted, workers are discharged."
The option of exporting inflation to a world that must sell goods to the American market is almost at an end. The ongoing credit inflation cannot continue forever because the world will not go along. "The final outcome of the credit expansion," noted Mises, "is general impoverishment." It is impossible for one nation - however powerful or important - to avoid the general impoverishment of all. In the present case, the disaster is amplified by America's role in maintaining a peaceful international order. Without American power, the North Koreans would attack South Korea, China would invade Taiwan, Russia would flood into Europe, and the international trading system that supports over six billion people would barely support three billion.
We are on the brink. A once decent system, turned to dishonest practice, faces a day of judgment. Billions of lives are in danger. The flight into real values is about to begin. An age of blood and iron follows.
