My buddy Bob wrote a book about Keynes, here some relevant observations of his:
In a very real sense, Keynes was a fool. Theoretically speaking, his scheme of
decreasing government (govt) spending when the general economy is strong, so that
govt funds can be saved to boost the economy later when it is weak (by increasing govt
spending) could probably work OK. BUT here is the rub, and why Keynes is loved by
politicians:
First, you have to understand that the economy is a function of government. Good,
smart, govt will bring good economic times, but poor govt can ruin the economy.
Put simply, the law trumps economics. If the politicos make bad law, the economy
will suffer, not matter what. Law comes first, then economics.
Now the politicos love to spend other people's money, money taken through taxation,
borrowing, and printing. Spending money keeps politicos in office, they get govt money
spent in their districts, and the local economy gets stimulated, and all local people are
happy. The politicos look like geniuses, and they get re-elected, over and over. So spending
govt money is what the politicos like most to do. It works great for THEM.
So when times are good, tax money is rolling in, and the politicos get a drunken feeling
they can spend like crazy with almost no limit (after all, even if times should get a little
dicey, they can still borrow and print). So they do spend like crazy, saving nothing for
that rainy day that ALWAYS shows up. Then when the economy does go down, they
have no savings to fall back on, so they have to borrow and print. And, of course,
keep right on spending. After all, they have promises to keep, rain or shine.
Keynes was music to the ears of the politicos, they got to spend when times were
bad, and blame Keynes for justification. And when times were good, they could
ignore Keynes, because nobody cares about Keynes or any other economic
theory when the money is rolling in from every direction. EVERYONE is drunk.
So Keynes was a fool, simply because no matter how good his ideas were,
economically speaking, they would (and are) trumped by politics: over-spending
by the politicians. Keynes failed to take human nature into account, and so
economic theory fails in the real world. And when it comes to money, it is only
the real world that matters.
The current situation in the USA right now is just the result of several (cumulative) cycles
of what I described above. The politicos are borrowing like crazy to support their
drunken spending, and their central bank is printing like crazy to fund the borrowing
and spending.
BUT, I am not the only one who understands this, and sooner or later borrowing will
have to slow down, because the lenders are (I think) starting to get wise - they are
starting to understand that, even though they will almost certainly get their dollars
back when their bonds mature, the buying power of those paid-back dollars will
have diminished greatly due to all the excess currency that the central bank has
printed to fund the borrowing and spending.
If works like this: The prevalent price for goods and services is simply the total of all
the currency involved, divided by the total of all goods and services available to spend
that currency on. So if the goods and services total stays relatively fixed while the
central bank is printing more and more currency, prices will rise - meaning the buying
power of each individual dollar goes down. By many people, this is called inflation.
But more accurately, the real inflation is in the number of dollars in circulation.
So anyone who lends good dollars today, will be repaid in weak dollars some time
later. One calibration on this is that since the U.S. Federal Reserve Bank was started in
1913, the buying power of the dollar has diminished by over 96%. What they are working
on now is the last 4% (actually a bit less than 4%).
As more and more people come to understand all this, they will be less
and less willing to lend their dollars to anyone, even the govt. And then we will
have a total economic collapse, because the only means left to the politicos to fund their
spending will be printing. And they WILL print, like crazy, in an attempt to literally save
their hides. And the buying power of the dollar will drop like a stone. I think that day
could be only a few short years from now; the big-time printing has already started,
hasn't it (well over a trillion $ a year)? And that is why I own gold and silver - an insurance
policy that pays a currency that cannot be printed. Precious metals are Mother Nature's
currency - as proven over 3000 years or more; they don't lose their buying power.
At the bottom line, economics is a confidence game, ruled by govt that makes the
law. When the govt is stupid, making bad law, sooner or later the economy stumbles, the
people lose confidence, and society goes into the toilet. I think I feel the swirling already. |
