Inflationomics

Following the Greek Example

Ok, so Greece has been living beyond its means for some time. It borrowed more money than it could repay. Because it couldn’t just print money to pay off its creditors, it became more and more difficult to service its debts, until, one day, it became impossible to service its debts. Consequently, its creditors tried to impose austerity measures on the government (and thus the people), i.e, cut back on government spending, sell off government assets, raise taxes, etc. Misery fell upon Greece…with youth unemployment at about 50%. Rebellion against austerity measures ensued. A party promising easy money and debt default was elected. Debt default followed. Will the drachma be reinstated with printing and easy money policies to follow? We’ll see.

Of course, the concern is not so much with Greece, as its GDP is relatively small at .39 percent of the world economy. The concern is what will happen with the rest of the world? You see, the rest of the world has been living beyond its means for some time, as well. Much of the rest of the world is deep in debt, too. Will the rest of the world follow in Greece’s precedent-setting direction?

Let’s consider one country in particular…the United States of America. It has been living beyond its means for quite some time. It allowed itself to spend more on public services and wars than it collected in taxes. The government, as well as the people, borrowed money to purchase goods and services, rather than saving first and spending secondly. The fact that the U.S. dollar is the world’s reserve currency has allowed Americans to purchase goods with an un-backed fiat currency which is being printed without any concern for the future. And all of this is being encouraged by the government and banks. See America’s Four Deficits.

Like Greece, will U.S. creditors impose austerity measures on the United States federal government and its citizens? Not directly. But there is a movement afoot to remove the U.S. dollar from its status as world reserve currency. This would reduce the U.S. dollar’s purchasing power, thereby reducing Americans’ ability to purchase foreign goods and imposing a form of austerity on them…a severe form of austerity.

Like Greece, the U.S. government has piled on more debt than it can possibly repay. But, unlike Greece, which has no control over its currency, the Euro, the United States has the Fed at its beck and call, to print as much money as is needed to purchase government debt, thus financing government wars, spying, welfare, vote purchasing, market manipulation, you name it. The U.S. government does it all, and more.

At some point, when the U.S. dollar loses its reserve currency status, the U.S. government will become the world’s biggest enemy. It will turn on its own citizens, seizing whatever wealth it can (cash first). It will pick wars with other richer countries, and will ultimately collapse when its own employees realize that the government has nothing to offer them except empty promises.

Greece is well on its way down the road to empty promises, but first it has to adopt the drachma, print it into oblivion, and then its journey will be complete.

As always, gold and silver, and other tangible assets are the safest hedge against government corruption/destruction.

Robert F. Sennholz

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