As Rome Burned…

50 MILLION Mark Note, Weimar Republic, 1923 (Wikimedia Commons)

With our attention focused squarely on the results of the mid-term election, the Fed attempted to sneak past their announcement of monetizing another $600 billion of US debt.  This process, know as quantitative easing, involves the Fed buying US treasuries (the equivalent of bonds or what most people would call IOUs) as a means to “stimulate” the economy.  How do they get the money to do it?  Easy – the Treasury prints it for them!  Put in simple terms, if you tired this at home, it’d involve having a friend print money for you to cover your debt – and you’d both go to prison for racketeering and counterfeiting.

Economists have dubbed this round of debt monetization “QE2” since it’s the second buy-up of debt by the Fed following the $1.7 trillion debt buy-up by the Fed in 2008 — although Titanic is a more apt name since that’s what’s coming if it doesn’t work.

Our government is convinced it can spend its way out of debt.  Have you ever tried this?  If so, how’d it work out?  Even an ounce of common sense tells you such a policy makes absolutely no fiscal sense.  The way to get out of debt is to control spending.  If the debt gets overwhelmingly bad, the only workable relief left is bankruptcy – or a financial “reset.”  Those are the only ways out of debt.  If someone offers another solution which he can’t explain in simple terms (such as “quantitative easing”), it’s not a real, workable solution.  Instead, it’s either simply delaying the inevitable or a “plan” designed to nothing more than distract your attention from the real problem.

If what the Fed is doing works, at the very least the money in your pocket and your bank account will decrease in value.  We’re told perhaps 20% — if we’re lucky.  So take whatever you have now and reduce it by 20% — that represents the reduced buying power of your money as the Treasury prints more and more money for the Fed to buy up our own debt.  Keep in mind; this is the best case scenario.

What happens if it doesn’t work out as planned?  Well, don’t worry about that.  It’s always worked before, right?  Not exactly.  Take a look at the Weimar Republic and Zimbabwe to see what happens.  Again, spending yourself out of debt is impossible!  It doesn’t take a CPA to figure out if expenditures continually exceed income you cannot remain in business for long.

Well, the United States weathered the Great Depression just fine, thank you very much, you might reply.  I’m glad you brought that up.  Without getting into all of FDR’s failed policies, which actually worsened the depression and made it the Great Depression, for purposes of this argument, we’ll simply consider one factor.  That one factor is manufacturing.

At the time of the Great Depression, the United States remained one of the leading industrial (i.e. manufacturing) nations.  We made lots of “stuff” the rest of the world wanted – particularly a Europe recovering from World War I.  While the destruction during World War I was not nearly as great as World War II, the human capital of Europe was nonetheless devastated.  They simply no longer had the bodies to put in factories to make stuff.  Therefore, the rest of the world was dependent on the United States for stuff.  That meant even in a bad economy, dollars were still coming in.

How’s that picture today?  We have almost no signification manufacturing left.  We import vastly more than we export.  The only thing we have the world still uses is the dollar.  What happens when they grow tired of our failing dollar?  What do we have left that requires the rest of the world to turn to us?  On a news show last night, one pundit talked about the strength of the service “industry.”  Service industry?  Are you serious?  When the dollar fails, we are to honestly believe we’ll be fine because the rest of the world will flock to our shores to take advantage of our fine restaurants and hotels?  That’s it?  Hotels and restaurants are our fall-back plan?

I hate to sound like Chicken Little and I pray to God that I am Chicken Little, but I warn you, I think the sky is about to fall.  What’s your Plan B?  ‘Cause it’s obvious to me that the government doesn’t have one.