Thursday, March 19, 2009

The US uses Zimbabwe as an Economic Model

Americans are being bombarded on numerous fronts -- AIG executives getting outrageous bonuses with taxpayer dollars, the government is bolstering illegal immigrants, Obama is placing pressures on states to restore the welfare state, etc., etc., etc. However, the biggest issue of concern to all Americans may be happening and getting a complete pass by the mainstream media. That is the paying for massive new government programs through the mass production of worthless money. Money, according to the New York Times, "printed out of thin air."

The United States government is using inflation, which is the most harsh form of taxation of all, to pay for its out of control spending. Inflation isn't merely "high prices," although that is a symptom of such a policy. Instead, inflation is "too much money chasing too few goods" and in this case for the purpose of paying for government. If the number of dollars go up, the value of that currency goes down. This results in higher prices, a decline in investment, and economic instability.

All of us are familiar with the history classes where we have seen Germany's inflation that resulted in a wheel barrell of money being required to pay for a loaf of bread. This inflation created such economic havoc that it created the perfect environment for Adolph Hitler to rise to power. It became so bad that it was easier and cheaper to use money as wallpaper than to go to the store and buy such.

In addition to destroying the value of our money, inflation is a horrible form of taxation. When our prices begin to go through the roof, our largely uneducated public will often blame business over government for the terrible changes we will witness. Inflation is the government's cowardly way to pay for its irresponsible programs.

Very few legitimate countries use inflation as a means to fund their governments. That policy is typically relegated to places like Iran (17 percent), Burma (35 percent), and Zimbabwe (231,000,000 percent). The last country's situation is such a disaster, it has 85 percent unemployment and the people are grateful it is only that high, with a worthless currency fueling that job market.

Just this week the United States took a chapter out of Zimbabwe's playbook by pumping $1.2 trillion into the money supply in an attempt to pay off its bills. Many Americans have (rightly) been alarmed by the more than $1.5 trillion we have seen in bailouts. According to the Washington Post, these inflationary efforts have the potential of being much more far reaching, noting that "combined with the billions already deployed by the Fed, the new money dwarfs even the biggest government bailouts of financial companies."
When the currency is ravaged by an inflationary money supply, the first place to turn to is to precious medals. Jay Hancock of the Baltimore Sun noted that "yesterday the Fed announced it would inject more than $1 trillion in the economy by buying longer-term Treasuries and mortgages. As Yves Smith notes, even the $300 billion the Fed pledged for Treasuries may not have much effect, given the huge supply of bonds the government needs to sell to finance the ballooning deficit. Gold is soaring, presumably on the expectation that the Fed's move will undermine the dollar and stoke long-term inflation. It's up $60 this morning. Has there ever been a bigger intraday or daily increase?" Precious medals should only go higher.

History has shown that "pumping money" into an economy to pay for government programs has always resulted in massive damage to a country. It is typically the last resort of third world governments on the brink of economic ruin. We have entered a very dangerous stage in our nation's history.

Kevin Price is Host of the Price of Business, the longest running show on CNN 650 (M-F at 11 am). Eric Bolling of Fox News and Fox Business and says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com.

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