Do As I Say, Not As I Do

Posted: November 15, 2010 in Commentary, Economics
Tags: , , , , , , ,

The G20 summit ended Friday with a statement of principles but no commitment to action, leaving the United States to go it alone in dealing with its fragile under performing economy and near-double digit (or even higher) unemployment.  Leaders pledged to work together and to refrain from protectionism and competitive devaluation of currencies. They also agreed to take steps to promote growth in low-income countries.    

What the U.S. wanted is for large export economies to stop manipulating their money supplies in order to keep their currencies at a relative multiplier to the U.S. dollar.  This activity, claims the U.S., damages our economy by causing production to shift to emerging economies instead of remaining in America.  The fact that the U.S. government cripples its own economy with crushing regulation, gluttonous deficit spending, destabilizing international military adventurism, and an overbearing national debt has nothing to do with the strains that foreign governments are placing on our economy.

What the rest of the G20  wanted is for the U.S. to stop manipulating its money supply in order to reduce the U.S. dollar to a level where its exports would be more competitive in international markets.  This would cause economic growth to return and inhibit capital flight from the U.S. to rapidly expanding BRIC and emerging market economies.

It’s always “Do as I say, not as I do.”  If all of these governments were participating in truly free market economics, they would allow interest rates to float freely so that capital would assess risk and benefit independent of intervention.  Business would make decisions based on highest efficiency and maximizing profits.  They would not be spending their time trying to time and outwit their respective oligarchical cartels and would be concentrating on production for the benefit of their customers.

This coercion will always result in the market working around the government manipulation to crush the manipulators.  First it shows up in unemployment and slowed growth.  It is then followed by inflation and slowed growth.  And finally it is followed by hyperinflation and the default of governments on their sovereign debt that is not collateralized.

What can stop it is switching back to money that it not controlled by governments, i.e. commodity based  money like gold.  This prevents central banks and politicians from devaluing their currency while trying to give handouts to every voting constituency that they are indebted to.  It also limits the ability of governments to borrow from their future taxpayers in an attempt to pull prosperity to the present from the future.

Unfortunately, politicians get elected by spending other people’s money.  Whether it is someone in the past , someone in the future, someone down the street, or someone around the world, all politicians know how to do is to steal from one person and give to a more favored person.  It is what creates conflict in the world.  People are remarkably peaceful when the governments that are supposed to protect them from theft are not practicing theft.

In the U.S., the elevation of  Ron Paul to the head of the Subcommittee on Domestic Monetary Policy of the House of Representatives could put a lot of the back room deals from the Federal Reserve, commercial banks, Treasury, and Wall Street in the limelight and cause a massive taxpayer revolt against the subsidization and bailouts of the banking, investment, auto, insurance and other industries.  Let’s hope that Americans will pay attention.

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