By John Reizner |
The fate of a nation is often dictated by the fate of its currency, like it or not. Should there be a national and/or international loss of confidence in a country's paper currency due to the authorities' reckless fiscal and monetary policies or the inability of a country to meet its financial obligations, the currency may become almost worthless, as history has shown. In these cases, national economies have sometimes been destroyed.
Our currency's health is threatened by the potentially inflationary impact of Obama's huge $787 billion stimulus package, and the unsustainable growth of our national debt burden, which will increase by $5.0 trillion from 2010-2016.
Fed Chairman Bernanke seems to know the solution out of this problem: print so much money in an effort to revive the economy that we may depreciate our debts through a potential 1970's style double digit inflation, or worse. We may simply pay off our debts with dollars that are worth a great deal less. Bernanke's intention to scale back his monetary ease once the economy recovers may be easier said than done.
The massive stimulus package and tax policy of the Obama administration represent a huge gamble that we will be able to pay off our burgeoning national debt at a later time. The policy is described as a "down payment" on our country's future. There is also another planned $646 billion "down payment" on redoing our healthcare system. Well, it seems more like the full payment to me. Young Obama think tank intellectuals back this federal buy now pay later policy as justified, at a time when discretionary spending is slated to grow at a staggering 11% rate. The 2009 budget deficit will be $1.75 trillion in 2009 alone.
It appears to me that this course is unsustainable, and that the only way out is a debasement of the currency. Gold may in the future regain its position as the foundation of our currency as a solution to the debt problem (which admittedly has problems of its own). Gold may until then do rather well as an inflation hedge and as a medium to maintain one's international purchasing power. Should the dollar decline in this environment as I expect it may, gold's position as a growing asset could be enhanced.
Can we really afford to max out our country's credit cards in the current manner? I do not think so. In my opinion, the key to keeping the budget deficit in check is by lowering the growth of discretionary spending and keeping taxes moderate enough as to encourage businesses to stimulate further tax revenue through economic growth. This approach may also be compatible with moderate financial sector regulation.
What is at risk here cannot be understated. We are indeed at a crossroads where going down the wrong way, toward ever increasing levels of federal debt and multi-trillion dollar deficits, may be resolved only by making our dollars domestically and internationally worth less (to the point of being almost worthless). The administration and the Federal Reserve are risking our dollar's status as a viable reserve currency and as we all know, jeopardizing the standard of living for millions of Americans.
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