Heads We Lose _ Tails We Lose

Monty Pelerin, in his article It’s All Coming Apart published yesterday in American Thinker,  shares his views on our current debt crisis. If you have never read Pelerin, you are in for a treat. You may not like what he has to say; but you will love the way he says it. This article and the one Pelerin links below should be considered must reading.

After blowing away the smoke that the political elite use to obscure the gravity of the current economic situation, Pelerin tells us, in no uncertain terms, that America and many other countries are in a debt death spiral and there is no escape, in his opinion. i want to share with you  five considerations that Mr. Pelerin thinks should be of concern to every American. Then I will offer up some thoughts of my own.

1. An Incompetent President – The President is inexperienced and incompetent.  He is likely a fraud, as evidenced by his guarded and unknown past.  He is incapable of leadership, honesty, or management.  Virtually every one of his policy initiatives has been harmful to the economy and country.  His intentions are clear; the degree to which he will be able to drive us further down the Road to Serfdom is not.
2. An Incompetent Political Class – The political class attained power via Santa Claus economics, providing gifts to constituents in return for votes.  Both parties are guilty.  Politicians have conditioned themselves and their constituents to “free-lunch” governance.  Few know how to govern in any other fashion.  Most are indistinguishable from prostitutes — vote for me and I will do “that” for you.  Both parties want to preserve the welfare-warfare State, disagreeing merely on the means of doing so.


3. An Incorrect Paradigm – The Keynesian model of spend and spend has been good for politicians but disastrous for the economy.  Over time, it has encouraged loose credit, overspending, and living beyond our means.  The failures are obvious to all but Statists and so-called Keynesian economists.  The political class cannot stop “free lunches” without suffering severe political consequences.  Hence, the abuses will continue until resources are exhausted.  Like Rome of old, we will soon run out of bread and circuses.


4. An Unhappy Ending – Current economic problems cannot be mitigated or solved without incurring another Great Depression.  Whether it is preceded by a deflationary collapse or a hyperinflationary blow-off is moot.  The ending is inevitable and as more people understand this ending, they take more extreme steps to protect themselves — spending ratchets back, savings increases, and businesses refuse to engage in new investment or hiring.


5. A Dangerous Prelude to the Ending – Government is insolvent.  It would be bankrupt without Federal Reserve Quantitative Easing.  As a cornered, wounded animal will do anything to survive, so will Government.  Does that mean confiscatory tax rates, capital controls, IRA investments forced into Treasury Bonds, “excess profits” taxes, a national sales tax, etc., etc.?  It could mean any or all of these and more.  Government will not roll over.  It will do whatever it can to continue, regardless of how illegal, immoral, unethical, or harmful it may be for the country.
Please do follow the link in item two. It is an article from The Freeman, where the author argues very convincingly that the Republican plan (Ryan’s plan) and Obama’s plan have the same end goal in mind; to preserve the welfare – warfare state. The end of each plan is the same; only the means are different.
Okay. Now it is my turn. I’ve been looking in my crystal ball and I see two possible outcomes.  Well, what I actually see is one probable outcome and one improbable outcome. Let’s start with the improbable outcome.

Heads We Lose

In this scenario, the Tea Party conservatives in the House hold their ground and refuse to allow the debt limit to be raised.  ( Not Probable) The result would be that world markets would collapse, interest rates would shoot up and, hyperinflation would be the rule of the day. In other words, we would fall into utter chaos.  If the free market system were allowed to sort things out without any interference from government, the country could emerge from this chaos in maybe five years and we would have the remnants fo the America of our Founders to rebuild once more. However, the more likely result of not raising the debt limit and falling into chaos would be that the Takers would rise-up against the Givers and there would be tremendous civil unrest if not civil war.

Tails We Lose

Under this scenario,  The debt limit is raised every time we come up against it. Eventually S&P or Moody’s or both cut our AAA rating. Markets collapse, interest rates go through the roof and, we enter the world of hyperinflation. America becomes another third world country. Hyperinflation has happened many times to many countries and they somehow survive. Argentina and Brazil come to mind. I was in Brazil in 1985 when inflation was several hundred percent per year. It was amazing how people managed to survive. Wages became indexed on a weekly basis, if I recall right. People would take their pay and run around buying any thing that they could be later traded for something they needed. Brazil’s economy eventually stabilize. Today Brazil is booming. So, America could survive hyperinflation as well, right? Maybe. But it should be remembered that people in third world countries have a different mind-set than people who grew-up in America. My guess is that Americans would not respond well to hyperinflation conditions. I suspect that the Givers would rise up against the Takers and there would be terrible civil unrest and maybe even civil war.
Not a very pleasant outlook I know. But people need to prepare themselves. I suppose there is some finite chance that the coin lands on edge; but don’t bet your life on it.

20 thoughts on “Heads We Lose _ Tails We Lose

  1. There is only one way out. I do not think politicians have the guts to do it. Our country is bankrupt and insolvent. We have to feel that pain and eliminate the FED. Permanently. This country and it’s politicians lack the personal courage to fix what’s wrong.

    They play small ball. They are not getting better, they are getting worse. They are incompetent.

    All of this is ok. I agree with the AT article- based on our politicians’ actions and not their words- we are in a heap of trouble.

  2. During hyperinflation many people in Brazil and other countries were able to use American dollars at times and also hide their wealth in other currencies. The question then is; where will the American people hide when it’s our turn?

  3. Since you’re going negative again, Jim, I feel it’s my duty to boost you up. Here’s my third scenario (however unlikely). While Ryan’s plan is not perfect, and may ultimately serve only to delay the inevitable, it or something like it gains traction and Obama is seen as fighting against being responsible for some utopian dream. He loses in 2012 and the Republicans, led by tea-party types, takes power. Some fiscal restraint, reworking of entitlements, and reduction of government regulatory burden takes place. Suddenly people start to realize that the economy is coming back… jobs are created… wealth is produced. With a memory of what nearly happened, people begin clamoring for even less government intrusion as they begin to see that government is an albatross around the neck of prosperity, not a way toward prosperity (this is especially obvious as the deep Blue states begin to fail and Red states that are reforming succeed–it could be the the failure of a few states will actually function as a wake-up call before the nation itself fails). The economy is increasingly robust and, as a result, the deficits disappear and even the debt starts getting smaller.

    Now, just to show I’m not an entirely rosy eyed optimist… this success will be followed by people screaming that in a country in which so many are doing so well, we need more help for the needy. At that point, we will find out whether the lessons of the early part of this century (particularly the period between 2008 and 2012) are learned.

    In the meantime, I’m buying guns and gold. 🙂

  4. Smart Pat…..cover all the bases if you can!! Hope springs eternal. I keep looking for little rays of success here and there, while trying to think like a survivor.
    Jim, my daughter pointed out the insanity of the debt “ceiling” the other day. She mused, “Why can you call it a ceiling if you can just keep moving it up?” “It must not be a ceiling,” she said. ah ha….such a smart daughter…
    Pelerin nailed the circumstances in that article. We can wish it were not so, but we’ll have to face the music for this most disastrous government and off the charts fraud of a president. His re-election is our worst nightmare…on top of the first term nightmare. I see Paul Ryan’s efforts as just a beginning, not an end of itself. He is just pushing the envelope as much as conceivably possible to get the ball rolling in the opposite direction..I think. We can’t turn this thing around on a dime, unfortunately. Inflation is already here and climbing. I think we are stuck with it for quite some time to come thanks to the robbers in Gov-Co., just wondering how fast and bad it will get.

    Hang in there…

    1. “Why can you call it a ceiling if you can just keep moving it up?” “It must not be a ceiling,”

      Hmmm. I think she takes after her Mother.

      When ..it hits the fan, the liberals will place all the blame on the free market system and the conservatives. You can be sure that they will never accept any blame.

  5. Neither option is terribly palatable. However, in either scenario, the parasites will become violent in order to gain power, and keep the gravy train flowing. We have to be prepared for that, as best as we can.

  6. You are right, it doesn’t look good and the outlook is very unpleasant. Brazilians survived hyperinflation in the 80’s because the vast majority was already living close to the bone.

    The same situation would blow our country up. Most people couldn’t survive if the grocery store closed for a week.

    Our situation is not impossible, but it gets more untenable by the day.

    The great irony would be if a Ryan-type plan were passed, calming the markets and buying us time, only to have the reprieve abused by progressive statists to grab more cash and break the bank, finally pushing us over the edge.

    Picture the drunken bum, after letting do-gooders bathe and clothe him in Sunday finery, keeping himself sober and upright just long enough to milk a few more dollars out of the trusting fools who thought he really had turned over a new leaf… *sigh*

  7. The debt ceiling? More appropriately a hot air balloon. This, from Before It’s News (http://beforeitsnews.com/story/573/615/A_Crisis_Thats_Four_Times_Bigger_Than_2008.html)

    […] the Fed HAS to engage in more QE 3 if it doesn’t want the entire market to collapse. Given the breakdown in Europe, the IMPLOSION in the Middle East, and the ongoing nuclear disaster in Japan, the removal of Fed liquidity would kick off a MASSIVE systemic Crisis.

    Remember, we had a full-scale market breakdown when QE 1 ended and that was because of Greece: a country with a GDP of $329 billion. Removing liquidity from the markets when Japan, the fourth largest economy in the world (if you count Europe as one economy), the largest Oil exporting region in the world (the Middle East), and Spain and Portugal are all breaking down would lead to an absolute market DISASTER.

    The Fed will not risk this. Besides it HAS to keep the liquidity going if it’s to continue supporting the TBTF banks in the US. Remember, 99% of what the Fed’s done in the last two years has been aimed at supporting the large, Too Big To Fail (TBTF) Wall Street banks. The reasons for this are:

    1) The Fed is in fact CONTROLLED by these banks via the Primary Dealer network

    2) Fed leaders are all front-men for Wall Street

    In order to understand these, you need to know that the REAL power of the Fed lies in its primary dealer network, NOT stooges like Ben Bernanke.

  8. Yes neither option is palatable. This is why it is more important than ever to learn self reliance. Hope everyone had a great easter!

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