The Weimar Solution

[I'm Gone 60]

http://www.humanevents.com/article.php?pri...es&id=31188

The best way to destroy the capitalist system is to debauch the currency,” said Lord Keynes.

Ben Bernanke disagrees. A student of the Depression, the Fed chair appears far more fearful of deflation — a vicious cycle of falling prices, debt defaults, home foreclosures and rising unemployment.

Deflation is what America underwent in the 1930s. A Fed-created bubble burst, causing margin calls to go out to stockholders, who ran to their banks that, besieged, collapsed, wiping out a third of our money. As Milton Friedman, who won a Nobel for his thesis that the Federal Reserve caused the Great Depression, told PBS in 2000:

“For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing … with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

“(T)he Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were … urging them to do that. So it was … clearly a mistake of policy that led to the Great Depression.”

Is Bernanke fighting the war of 1929 in 2009? Surely, today, with the explosion in M1, the basic money supply, there is no shortage of dollars out there, even if they are not circulating fast enough.

To end our recession, Bernanke may be running an even greater risk: hyper-inflation. This has destroyed more nations than deflation or even depression.

Recall: It was French military intervention in the Ruhr in 1923, to force payment of war reparations, and Weimar’s decision to let the currency fall and pay the French in cheap marks that led to the wipeout of the German middle class, the discrediting of that democratic republic and the Munich beer-hall putsch of Adolf Hitler.

“The first panacea for a mismanaged nation,” said Ernest Hemingway, “is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

Which brings us to last week’s shocker.

The Fed will buy up $300 billion in long-term Treasury bonds and spend $750 billion more buying sub-prime mortgages to remove them from the balance sheets of ailing big banks, to get the banks lending again.

Bernanke is printing money to buy U.S. bonds.

This new gusher from the Fed, after the $700 billion TARP bailout, comes on top of a Congressional Budget Office estimate that this year’s deficit will be $1.85 trillion, 13.1 percent of gross domestic product, more than twice the share of the U.S. economy of the largest previous postwar deficit.

Concluding the dollar is being abandoned in a frantic Fed effort to stop the recession, markets reacted instantly. The dollar plunge was the steepest since the Plaza Agreement of 1985. Gold shot up to $950 an ounce. Silver had a 12 percent run-up, the sharpest ever. Oil prices surged above $50 a barrel. Commodity markets advanced.

The Fed seems to have confirmed the fears of Premier Wen Jiabao, who said that China is “definitely a little worried” about the value of the U.S. bonds Beijing has purchased with the dollars piled up from her trade surpluses with the United States.

Can one blame the Chinese? They have already been burned on their U.S. investments. And if the defense of the dollar against its ancient enemy inflation is being abandoned, and protecting the dollar is to take a back seat to the Fed’s fight to avoid deflation, than it is indeed time to get out of the dollar and dollar-denominated assets.

For inflation is theft. It make liars and cheats of governments. By eroding the value of a currency, inflation punishes savers and creditors and rewards debtors. And what nation is the biggest debtor of them all? The United States of America.

Insidiously, inflation consumes the value of cash, savings, municipal bonds, corporate bonds, Treasury bonds and T-bills. Friends who lent America money, who bought our debt in good faith, are robbed and made fools of, while speculators who bet against America by shorting the dollar in the currency markets are vastly rewarded.

Given the $3.6 trillion budget Obama plans, the $1.8 trillion in red ink he will run by Oct. 1 and the trillions the Fed is pumping into the economy, gross domestic product should spike, as it did after the far smaller stimulus package of 2008.

We will feel a healthy glow, and folks will begin to sing, “Happy Days Are Here Again.”

Yet, one senses that we are doing again exactly what we have done before in this generation. Rather than endure the pain and accept the sacrifices to cure us of our addiction, we are going back to the heroin. And this time, with Dr. Bernanke handling the needle, we may just overdose.

[peejay 327]

That is the theory in a nutshell. Kind of scary...ain't it? Our present dilemma could end real ugly.

As usual, Pat Buchanan has done his homework.

Edited March 24, 2009 by peejay

[Peikko 1,575]

Time to set the militia wheels in motion eh Peejay? Wouldn't want to let those libruls turn all fascist on you and destroy the middle classes!

Oops, I smell bullshit.

[Trumplestiltskin 5,791]

That's the beauty of historical comparisons - if you use as little detail as possible any historical comparison can have modern relevance.

[peejay 327]

Time to set the militia wheels in motion eh Peejay?

You tell me. You're the psychic. That's why I nicknamed you Madame Cleo.

[Peikko 1,575]

Hardly an answer that befits the question. Seriously though, don't you find it a little weird if someone one is meant to taken seriously uses these analogies? In such a flippant way to boot? Or, do you really think that somehow Obama and his cronies are set on a course to destroy the middle classes and install some kind of 'ivory tower political elite'? It seems rather far fetched to me.

Whatever Obama and his pals are doing, what they are not trying to do is destroy America and what it stands for deliberately and with malice aforethought.

Edited March 24, 2009 by Madame Cleo

[I'm Gone 60]

That's the beauty of historical comparisons - if you use as little detail as possible any historical comparison can have modern relevance.

Yeah and insanity is doing the same thing over hoping for a different result.

[Peikko 1,575]

No one is doing anything similar to what has been tried before, but, you know, reading such bullshit and believing it has these results I guess.

Edited March 24, 2009 by Madame Cleo

[peejay 327]

No one is doing anything similar to what has been tried before, but, you know, reading such bullshit and believing it has these results I guess.

So....tell us the future that you see in your crystal ball. You seem to be all knowing and all seeing.

[I'm Gone 60]

No one is doing anything similar to what has been tried before, but, you know, reading such bullshit and believing it has these results I guess.

I think you better read up on what Japan did when their bubble popped if you don't think the U.S. government is doing something that has been tried before and failed.

[one...two...tree 2,762]

That's a gross misrepresentation of Maynard Keynes. Human Events sends me emails nearly everyday. I think I signed for McCain's website once and have since been bombarded by Right Wing propaganda like this.

[Peikko 1,575]

No one is doing anything similar to what has been tried before, but, you know, reading such bullshit and believing it has these results I guess.

So....tell us the future that you see in your crystal ball. You seem to be all knowing and all seeing.

What on earth have I posted that leads you to that particular conclusion? I have simply said that trying to demonize Obama and his administration is not going to somehow magically bring solutions. The best thing anyone can do is try to look for common ground, not try to tear what ground is left from under the feet until no one is left standing.

[Peikko 1,575]

Which is not to say everyone should agree, I don't believe that they should, but this demonizing has a negative effect and that is exactly what it is being implied, that America is heading right down the path that leads to National Socialism. I guess because 'Socialism' appears in the name, you guys think it has something to do with Obama, am I right?

Edited March 24, 2009 by Madame Cleo

[Trumplestiltskin 5,791]

Buchanan is just another doomsayer. As sensationalist headlines sell newspapers, so do sensationalist columnists.

No shortage of people willing to believe that each new administration is the advent of a new age of totalitarianism.

People need to get a grip and stop buying into such garbage.

[I'm Gone 60]

Buchanan is just another doomsayer. As sensationalist headlines sell newspapers, so do sensationalist columnists.

No shortage of people willing to believe that each new administration is the advent of a new age of totalitarianism.

People need to get a grip and stop buying into such garbage.

I think if you would go back and read what he has put out, he's been saying what has happened would happen way before it did.