Recklessness 2021 vs. wisdom 1981


Here we go again. The strategy of monetary expansion, deficit government spending and rising prices seem deceptively wise and good – the easy and sure path to growth, improvement and happiness.

It’s not. It is the path of disappointment, loss and despair.

Why does deception work? Because the 40-year-old story is dismissed as obsolete and irrelevant. pride (according to Merriam-Webster, “a great or a folly of pride or confidence”) is ubiquitous now, placing the thoughts and actions of today above past experience. In such an environment, history is easily repeated.

Pain and forced sacrifice will come. It’s always like that. In the end, the lesson of reality will have been learned, but too late. If only the words of President Reagan’s first national speech forty years ago had been read, understood and taken to heart – notably by the Federal Reserve and government leaders.

The bottom line: Reagan’s wisdom in 1981

Excerpt from Ronald Reagan’s first presidential address to the nation on February 5, 1981 (emphasis added):

“… government – any government – has an inherent tendency to develop. Now we have all participated in seeking government benefits as if the government had some source of revenue other than our revenue. A lot, if not most of the things that we thought of or that the government offered us sounded appealing. “

Some government programs seemed so interesting that we didn’t mind borrowing to finance them. In 1960 our national debt stood at $ 284 billion. Congress in 1971 decided to cap our borrowing capacity at $ 400 billion. Today the debt is $ 934 billion [$3 trillion in 2021 dollars]. So-called temporary increases or extensions to the debt ceiling have been authorized 21 times in those 10 years, and now I am forced to ask for another increase in the debt ceiling or the government will not be able to function after mid-February. – and I’ve only been here 16 days. Before we reach the day when we can lower the debt ceiling, we may, despite our best efforts, see a national debt of over $ 1 trillion. This is a number that is literally beyond our comprehension.

We now know that inflation results from all of this deficit spending. The government has only two ways to get money other than raising taxes. He can go to the money market and borrow, compete with its own citizens and raise interest rates, which it has done, or he can print money, and it’s done. Both methods are inflationary.

“We are victims of language. The very word inflation leads us to think that it is all about high prices. So, of course, we blame whoever puts price tags, forgetting that he is also a victim of inflation. Inflation is not just high prices; it is a reduction in the value of our money.[Since 1981, the value of the dollar has fallen from $1.00 to 31 cents.]

The Federal Reserve’s shell game

The Federal Reserve is in its second decade of deluding government leaders that 0% interest rates produce growth without hurting anyone. This usurpation of the key principle of capitalism (market-based pricing) first created glut through an excessive expansion of the “build-it-and-they-come” belief. Now, those glut has led to shortages due to the alleged lesson learned from on-demand and just-in-time production.

Added to the problems are the pervasive, but unadjusted, inequalities between borrowers and lenders, investors and savers, the haves and everyone else.

The dangerous compromise of the US government

The key US government mistake continues, untreated: allowing spending wants and “needs” to be paid for by excessive US government borrowing and the creation of fiat money. Uncontrolled, this imbalance of reality is the historical cause of the inflationary ruin of the masses. It ends horribly with the leaders who promoted it professing that “no one could have known.” The warning signs are everywhere, but the pressure is always for more borrowing and creating money to do “good works”.

Balancing the budget to meet real needs would require cutting spending, increasing taxes, creating incentives and securing financial support from state and local communities. However, the current belief is that the spending, itself, will produce disproportionate growth and financial benefits that will more than offset the spending. It was the popular “multiplier” effect in the late 1960s and early 1970s that was later disproved by reality.

An additional problem is Congress, the body that distributes the trillions. History shows that a “compromise deal” means misallocation and politically motivated waste.

The bottom line: though pervaded by ignorance, the path to inflation remains the path we must follow

The United States may have more resources to fend off the ill effects now, but, as happened in the 1970s and 1980s, the end and dismal results will be the same unless action is taken. taken to temper and reverse the causes.

In the current environment, this will not happen. On the contrary, it sounds like another example of not doing the wise thing – to believe that today’s conditions are more robust and the leaders are more enlightened, so that the pains and sufferings of the past have not. need to happen.


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