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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Jim Willie CB who wrote (20301)10/19/2004 9:01:03 PM
From: Elroy Jetson  Read Replies (1) of 110194
 
The strong dollar policy was the least expensive way to pay for Reagan's massive shift from supporting the government with visible taxes to supporting the government with debt and monetization.

It bought time while government spending was brought back into line with actual tax revenues either through reduction of spending or an increase in tax revenues.

The recent explosive surge in government spending has eliminated this policy alternative. A much weaker dollar, with an ensuing sharp decline in national wealth, has been occurring and is inescapable.

Eliminating taxes by taking on additional debt, with the inevitable monetary debasement, has always ended with disastrous results through out history.

The creation of the additional debt/money, representing less and less capital, drives down the the interest rate below what the market would have dictated. This hidden tax results in less productive work and investment while increasing speculation. This creates the hollow prosperity which Joseph Schumpeter and Charles Rist both described during the period following World War One -- a period during which governments previously replaced taxes with debt and monetization.

It is no coincidence that the savings rate and percentage of home equity both went into decline following the 1987 implementation of the Reagan program.

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