The Keynesian Fiat Economies are so Bad that the World is Turning back to Gold

Posted by PITHOCRATES - January 19th, 2013

Week in Review

Keynesians hate the gold standard.  They blamed it for the Great Depression.  Which they believed could have been avoided if the government printed more money instead of contracting the money supply.  For a Keynesian’s answer to everything is to expand the money supply.  So the government can spend more money.  This came to a head in the U.S. during the Seventies.  Foreign countries were converting their dollars into gold.  Because the U.S. was devaluating the dollar by printing so much new money.  So these countries took the gold instead.  Because you can’t depreciate gold.

The Seventies were a disaster.  It turned out that the government just couldn’t print money to pay its bills as the destruction they caused on the dollar devastated the economy.  So they backed off.  The Federal Reserve raised interest rates into the double digits to stamp out that destructive inflation.  The world didn’t return to a gold standard, though.  As most countries were still hard-core Keynesians who liked the ability to make money out of nothing so they can keep spending. But now the Eurozone is in a sovereign debt crisis.  The UK is slashing their NHS budget.  Japan is now spending twice their GDP and stuck in an economic slump going on for over two decades.  And as the U.S. is spending about 100% of its GDP they added a whopper of a new entitlement.  Obamacare.  The destruction of the dollar isn’t a question of if but when.  And now we’re seeing a quasi return to the gold standard as nations everywhere are losing faith in the ability of these Keynesian governments to spend responsibly (see A new Gold Standard is being born by Ambrose Evans-Pritchard posted 1/17/2013 on The Telegraph).

The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project.

Some readers will already have seen the GFMS Gold Survey for 2012 which reported that central banks around the world bought more bullion last year in terms of tonnage than at any time in almost half a century.

They added a net 536 tonnes in 2012 as they diversified fresh reserves away from the four fiat suspects: dollar, euro, sterling, and yen…

Neither the euro nor the dollar can inspire full confidence, although for different reasons. EMU is a dysfunctional construct, covering two incompatible economies, prone to lurching from crisis to crisis, without a unified treasury to back it up. The dollar stands on a pyramid of debt. We all know that this debt will be inflated away over time – for better or worse. The only real disagreement is over the speed.

This is the inevitable result of Keynesian economics.  Reckless spending that destroys currencies.  And right now these countries stand in judgment of the U.S., the Eurozone, Great Britain and Japan.  Their social spending obligations have put them on a path towards currency destruction.  And they don’t want be around when that happens while holding dollars, euros, sterling, or yen.  Because they just won’t be worth the paper they’re printed on.

In Ayn Rand’s Atlas Shrugged American Industrialists went on strike.  Walked away from their companies and disappeared.  Leaving their overregulated and overtaxed businesses to the government to do with them as they pleased.  Refusing to be economic slaves anymore.  They eventually migrated to a place called Galt’s Gulch somewhere in Colorado.  Where they made their own community.  And economy.  Where creators traded with other creators.  Using that one money that stood the test of time.  Gold.  For if you wanted to buy something in Galt’s Gulch you had to have gold.  For no one accepted cash there.  Some have been predicting we’ve been on the brink of something like this actually happening for the last 80 years or so.  And now it’s happening.  Only it’s not American industrialists turning on the U.S. government but the rest of the world.

Is it any wonder that sales of Atlas Shrugged have surged during the Obama administration?  These people are seeing what these countries see.  The decline of the U.S.  And the destruction of the dollar.  Thank you President Obama.

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