Docgrubb’s Weblog

     Regarding America’s fate, perhaps Karl Marx was prescient.  But if so, it was for the wrong reasons.  He and his increasingly vile political progeny predicted that the capitalist West would destroy itself from within, without any need of external enemies.  And we may be witnessing such a self-destruction in the current economic meltdown.  Yet in all the brouhaha over this cataclysm, very few commentators (blogosphere excepted) discern its true origin, or place its blame squarely where it belongs.

     So let me hasten to add that this blame certainly does not rest upon any intrinsic shortcomings of capitalism.  In that sense Marx was wrong, for capitalism – its contractual transfers big and small, its supply and demand rule, its consistency with human nature, the logic of barter – will never and can never perish from this earth, notwithstanding all efforts by past or future Stalin’s and Mao’s.  As a pure system, nothing is as fair, as stable, as efficient, as moral, as uplifting, or as natural to our natures as is capitalism.  Yet we are witnessing the ruination of the West, and so we must comprehend how this ruination has been wrought by a very distorted form of capitalism, an impostor, and not by the beautiful lady herself.  And, like ne’er-do-wells impersonating doctors, so this 80 year old impostor is inflicting great harm.  As will be apparent, we have not had real capitalism since Calvin Coolidge.  No doubt Greenspan, Bernanke, and Paulson all claim to be capitalists.  But remember the following.  In explaining disappointments with the Church, many have claimed that the problem with Christianity is indeed Christians.  And Mencken said that “the trouble with communism is the communists”.  Perhaps Americans are presently re-learning that the problem with capitalism is the capitalists.  Or those who fancy themselves such.

     On Tuesday of this week, an “artist” distributed 10,000 fake “Zero Dollars” in front of Wall Street in protest of failed economic policies.  What she may not realize is that the dollar’s value has theoretically been zero for generations.  Roosevelt revoked the domestic gold-standard in the early ’30’s.  Not quite 40 years later, Nixon halted the international convertibility of our currency.  Nowhere on our modern bills do the words “gold’, “silver”, or “pay to the bearer on demand” appear.  So the continued acceptance of these notes in payment, i.e. their whole worth, is based solely on trust.  But that trust has been abused sorely at the hands of financiers and central bankers.  And, yes, it has been abused unwittingly by nigh on two generations of American consumers.

     Most past economists and all honest present economists have agreed that a metal-backed, convertible currency is the only sure way to protect the savings of workers or ‘the little guy’ from the malfeasance of government manipulation of fiat currencies.  And as in all such cases, our government has been unable to resist the temptation. (The most excellent explanation for what has happened was delivered by Rep. Ron Paul before Congress on Sept. 5, 2003:  “Paper Money and Tyranny”  [available at  www.house.gov/paul - click on 'Speeches and Statements', then scroll down to date].  This should be required reading for all voters.)  A dollar in 1999 had the purchasing power which just six cents had in 1910.  Our dollar of 2008 even less.  To most adults, this is just an unquestioned piece of cultural lore.  But it did not have to be thus.  Prices under ancient Rome remained stable for three centuries until debasement (not fiat paper) brought about inflation.

     Keep in mind, however, that our government has gone far beyond mere slight-of-hand taxation (via inflating a fiat currency) of its own citizens.  It has extended the ploy to the entire world with the help of dollar hegemony.  (Again, others have elucidated this subject well, so in the interest of brevity, I refer readers to their search engines.)  The world has, up to now, accepted our zero dollars either out of coercion or lack of alternatives, but those days are closing fast.  And what we have are trillions of dollars in foreign hands with impending massive inflation as those dollars are dumped in a global collapse of confidence. 

     But we find ourselves here not solely because of bad governance. Over the past three decades we American consumers have learned only too well from our government tutor.  Lacking the natural check on spending imposed by the need to redeem our currency to foreign creditors, we soon developed escalating trade imbalances.  As long as they kept accepting our paper, we kept buying their goods and thereby mindlessly exporting our jobs.  Soon they were loaning us the very money we used to buy from them.  We developed a culture of debt, allowing us to live far beyond our means.  Collectively, we were the heedless teenager in possession of a Mastercard, spending her dad into bankruptcy while his guard was down.  In contrast, trade and public spending under a gold standard is more akin to the original American Express card – obligations must be paid off periodically (or even in advance).  One cannot accumulate gargantuan debt.  The teenager could still cause problems for dad, but she’s unlikely to bankrupt him.

     The foregoing process is entirely analogous to 16th century Spain.  The unearned riches imported from the coffers of New World civilizations allowed Spain to spend and keep spending, importing manufactured goods and material from neighboring Europe instead of developing their own commercial and industrial base at home.  Consequently, Spain missed out on the Industrial Revolution, and remained an economic backwater until quite recently.  Unearned wealth always harms and usually corrupts, both individuals (e.g. lottery winners) as well as nation-states.  The fiat US dollar, seemingly inexhaustible since the abandonment of Bretton Woods, has served that same role of false wealth for our postmodern era.  And this American public, deceived by politicians, uninformed by a media shirking its investigative mandate, and untaught by an academia more content to rewrite history than to teach it, has blithely participated in this gluttonous financial chicanery.

     Yes, the proximate cause (trigger, really) of this unfolding meltdown is the mortgage crisis.  And this we have courtesy of Barney Frank, Fannie Mae, Freddie Mac, Obama’s ACORN, and their collective PC folly that home ownership is a right and not something to be earned.  But the foundational cause is that ancient, yet ever-ascendant humanism which holds that Man knows better than God:  “This fruit doesn’t look dangerous;  License, not submission, brings fulfillment;  Government, not Providence, can be our safety net;  Paper, not Nature’s gold, will be our money”, (and will conveniently enrich those who control it).  The list is endless.

     Now comes the day of reckoning.  The piper waits, but we’re unable to pay.  The house of cards has fallen.  We’ve been dancing with a harlot dressed like a bride, but now the veil is lifted.  Pick whatever metaphor you please – almost all of them apply.  Ron Paul was a lone voice crying in the wilderness.  No one listened, and now it is too late.  Even if he were elected Chief Executive, and Congress did everything he directed, it would not remedy our situation.  (Perhaps our suffering would be ameliorated.)  We need to bite the bullet and take our hits.  The $700 billion bailout is more of the same money-is-cheap, something-for-nothing mindset that got us into this jam.   It is the use of horrible monetary policy to fix the results of horrible monetary policy.  Our misguided leaders vainly hope to rescue the economy with such tactics, much as the bygone colonial doctor “treated” his anemic patient using blood-letting.  Rather than exacerbate the harm, they should confess their folly, resign, and go home.  The rest of us should fast and pray.