Great Depression Online Archive Issue:

Keynesian Hogwash

Great Depression Online
Long Beach, CA
February 05, 2010

Inside This Issue You Will Discover…

*** No One Wants to Get Rich
*** Running Out Of Beans
*** Keynesian Hogwash
*** And More

No One Wants to Get Rich

Stocks tanked yesterday.  The DOW fell over 268 points.  Should we care?

Not today.  We’ve got other thoughts on our mind…

Like getting rich.  Here’s our observation on the topic…

Many people want to be rich.  Yet almost no one wants to get rich…as nears as we can tell.  For getting rich takes patience, persistence, and perseverance.  It takes hard work and discipline.  And above all, it takes saving more than you spend…or spending less than you save.

~~~~~~Toronto’s Secret~~~~~~

Toronto’s Secret Gold Investment returns 1,739% after gold prices rise.

Gold is up 85% in the past three years — but a secret investment from Toronto can return 10 times as much after gold prices rise.  Last time conditions were this good, it returned 1,739%. That’s why The New York Times recently told American investors to “pay attention to Canada.”

Pay Attention to Canada

~~~~~~~~~~~~~~~~~~~~~~~~~

In 2005, at the height of the colossal delusion that spending money makes you rich, the U.S. savings rate actually went negative.  In other words, individuals collectively ran up their credit cards.  They lived beyond their means.  They lived it up while weighing themselves down with debt they’ll be paying off for years to come.

Unfortunately, the new debt wasn’t invested in profitable enterprises.  It was invested in condos in south Florida, vacations to Cancun, or just frittered away for fun and entertainment.  Money was practically free if you owned a house.

Yet when the rainy day came, people were shocked to find thief cash flow had slowed to a trickle.  That all the spending had actually made them poorer. 

Government debt and loose money from the Federal Reserve successfully engineered a magnificent stock market rally.  But it did little good to gin things back up in the real economy.  Instead it just bloated out and hindered real economic change.

What we mean by all this is mistakes must be corrected, marginal businesses must fail, reckless lenders must be expunged, and the whole economy must be restructured so capital is reallocated to productive endeavors.  This takes time.  And when the government intervenes to support the failures, this takes even more time.

Running Out Of Beans

Many individuals have taken it on the chin over the last several years.  And for most, they’ve done what must be done.  They’ve tightened their belts, dialed down their expenses, and recalibrated their expectations. 

The government has done none of these things.  Instead, they’ve done the exact opposite.  Washington, you see, dwells in fiction and fantasy.  They spend money from the future believing it will make the world a more prosperous place.

This week, for example, President Barack Obama proposed a $3.8 trillion budget for fiscal year 2011.  The big problem, however, is that when you count up the beans, they run out long before the expenditures.  Of the $3.8 trillion, the government will only haul in $2.5 trillion.  The rest of the spending – $1.3 trillion – will be made up with debt.

The budget “reflects the serious challenges facing the country,” Obama said in remarks at the White House.  ‘We’re at war, our economy has lost 7 million jobs over the last two years, and our government is deeply in debt after what can only be described as a decade of profligacy.”

Fair enough.  It certainly has been a rough stretch.  Yet rather than change…we get more of the same.  Big government.  Big spending.  And big deficits.

Living within one’s means, like getting rich, takes restraint, moderation, and discipline.  The government seems to be lacking in all three of these areas…and more.

Keynesian Hogwash

Naturally, all the deficit spending is based on Keynesian hogwash.  The fundamental hogwash of Keynesian economics is deficit spending.  That’s why the government loves it. 

In fact, the U.S. Government loves it so much they’ve been running budget deficits practically nonstop for nearly 50 years.  They’ve been spending more than they tax for so long they’ve managed to run the national debt up to over $12.3 trillion.

So, in effect, Obama’s budget is just more of the same.  And with Bernanke, the Milton Freidman zealot, in for another term at the Federal Reserve, you can be sure he’ll have the monetary gates opened at full blast even if it ruins the currency.

For the last 25 plus years Federal Reserve has implemented Freidman’s monetary theory with excellence…the U.S. economy’s enjoyed boom after boom with hardly a bust worthy of mention.

Yet several peculiar things have happened along the way.  Public and private debts have exploded.  And with each interest rate cycle, the economy flounders around at a diminishing and ever more stunted return.

Pretty soon we’ll all be broke.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  As The Toronto Star reported: “Over the last 10 years, the lack of exploration and lack of development of new mines and record-low inventories for most metals just leads to better outcomes going forward.”  If you are interested in taking advantage of this situation, you will get all of the details in the Investment Research Report called: The Toronto Retirement Plan

 

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