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It seems the administration can never
see the realities that stifle economic growth-- the hard realities right
before their eyes that most of us see and must deal with every day. The terrible
trio at the controls of the US economic engine is driving us not into a
ditch, but over a cliff. The Fed Chairman is flooding the economy with too
much liquidity. The Treasury Secretary believes the best way to recovery is
through more government spending, taxing the rich and forcing broader
redistribution of the nation’s wealth. The president’s vision for
prosperity is government control of production and economic equality. Our
elected leaders pander and deceive in full-time re-election campaign mode,
with Newspeak and misdirection to mask the realities of high unemployment,
high consumer prices, falling wages and slow economic growth.
The scorecard for the last three years
is clear and bleak. The US credit rating has been downgraded. The Dollar is
weak. Unemployment is at Depression-era levels. 46 million Americans are on
food stamps, an all-time high. 2.6 million people
slipped into poverty last year, bringing the total in America to 46.2
million, a 52-year high. Housing prices continue to fall and the number of
foreclosures continues to rise. Commodity prices are high. $4.00/gal gasoline
prices are forcing consumers to cut back. Corporations are not hiring, opting
instead to hoard $1.7 Trillion in cash that would otherwise go to capital
investment, expansion and new hires.
The simple fact is economic policies put
forth by Washington today have never created wealth or prosperity anywhere or
any time in history. No one has ever become wealthy by taxing the rich.
Socialist redistribution has always failed. And the majority of hard-working
citizens know just how out-of-touch the Washington ruling class is.
In the 1700’s, the Age of
Enlightenment, the field of economics was known as the “Political
Economy”. Political Economy originally referred to the study of
production and commerce and their relation to law, custom, and government. It
also referred to the distribution of national income and wealth through the
political budget process. Political economy is rooted in moral philosophy,
the ethics of right and wrong behavior. Since the 1900’s, the study of
such relationships adopted some elements of scientific method, and became
known as the science of economics. But economics is not a science bound by
the laws of physics, which is why most political economic theories such as
communism, socialism and fascism largely fail, save one, namely laissez-faire
capitalism.
The economic policies of overarching
Federal government control, Fed intervention, crony-capitalism, growing
entitlement class, and massive wealth redistribution are morally bankrupt and
injurious to individual liberty and happiness. All free citizens should
resist tyranny and plunder forced on them by out-of-control Federal
government. And here is how.
·
Own True Money. Gold has been
the only true money for over 3,000 years. Buy and own gold as a store of
value to protect your wealth against the vagaries of fiat currency.
·
We have seen the unprecedented
debasement of the Dollar by ultra-easy Fed policy and the printing of
$3Trillion out of thin air. The growth of the money supply has outstripped
growth in output which has caused prices to climb and the purchasing power
the Dollar to fall.
·
Deleverage. Eliminate
consumer debt. Invest in hard assets.
·
Be Vigilant. Stay informed
on current legislation that may impact your financial wellbeing. Take action
to protect your individual liberty and private property against incursions
from federal, state and local governments.
·
Be Prepared. Make
preparations to protect yourself, your family and your property for an
environment Without the Rule of Law. Read Atlas Shrugged by Ayn Rand.
·
Vote. Vote for
pro-growth candidates who respect and will defend the Constitution.
The difference between ultra-progressive
economic policies and pro-growth economic policies are clear in our history.
Plymouth colony nearly perished under its first government, which was based
on the communist principles of central planning, labor classes and government
owned property. The fledgling colony only survived by later recognizing that
its members tended to work harder to generate healthy crops and individual
wealth by cultivating their own private land, rather than working the
“common land for the common good.” In the 1930’s the “common
good” became the rationale for massive government intervention in the
labor markets, in which the federal government taxes the labor of young
workers to support retirement “entitlements” for the elderly. But
demographics have changed such that Social Security will be bankrupt in ten
years without massive reform. Perhaps the best comparison between progressive
vs. pro-growth policies is a look at the Reagan years and today’s
administration.
As did Reagan, Obama came into office
during recession. In the current recovery, real GDP has averaged 3%.
Employment as defined by nonfarm payrolls and reported by the BLS has edged
down from 10.2% in early 2010 to 8.3% in March. Actual unemployment today
(BLS U-6 measure) is 14.9%, up from 14.1% when Obama took office. During Reagan's
recovery real GDP averaged 7.7 percent annually while nonfarm payrolls rose
by 5.3 million. Reagan reduced inflation from 12.2% when he took his first
oath of office as president to 4.4% in his last year of office. Today,
inflation is negligible at 2.1%, according to the Fed, yet everyday citizens
pay much more to live this year than last year, and the years before that.
Why are there such major differences in
US economic performance under Obama and Reagan? Reagan saw free market,
private-sector enterprise as the road to prosperity. Obama has chosen massive
expansion of the federal government as the way forward.
Obama's first act was an $835 billion
government-spending package. One of Reagan's first decisions was to cut $50
billion (($100 billion in today’s dollars) from domestic spending.
Obama focused priorities on nationalized health-care, energy
cap-and-tax-and-trade, and pro-union card check. Reagan focused on free
market measures; he ended wage and price controls, deregulated all energy
prices and fired the striking federal union air-traffic controllers.
Reaganomics spurred growth through
limited government, a strong dollar and lower taxes. Reagan slashed marginal
tax rates from 70 percent to 28 percent. Reagan’s lower tax rate policy
(attributed to the Arthur Laffer) actually raised tax revenues from $300
billion to $450 billion.
The current administration seeks to
raise tax revenue, particularly for the nation’s highest earners. In
his fiscal 2013 budget, released earlier this month, the president would
allow the Bush tax cuts to expire for income above $200,000 for individuals
and $250,000 for couples and charge a new 3.8 % tax on net investment income
above those levels.
Under Reagan, overall federal spending
dropped from 23 percent of GDP to 21 percent. Obama has grown the size of
government to 25 percent of GDP.
Reagan ran a budget deficit of about 3
percent of GDP, the same percentage left by Carter. Obama’s 2011 budget
deficit was $1.6 Trillion or 11% of GDP.
Reagan believed in sound money and a
reliable currency. It was Reagan’s pro-growth tax cuts and
counter-inflationary monetary policy that ultimately reversed the 15-year
decline in the US Dollar. Since 2009, the Fed and central banks have flooded
the world with more and more paper money. More dollars, Euros, Yuan and Yen
have steadily pushed up commodity prices at the expense of currency values.
The US Dollar, for instance, has fallen 17% since February 2009, when the
$838 Billon American Recovery and Reinvestment Act of 2009 was passed.
GDP priced in gold gives us further
insight. We can see the upswing in gold-priced GDP in the post WWII boom, the
decline in the Carter years, the resurgence under Reagan, Bush ‘41,
Clinton and Bush ‘43, and the fall under Obama.
 
Overall, Reagan's free-market,
pro-growth policies created 21 million new jobs as real GDP averaged 3.5
percent annually for seven of his eight years in office. The unemployment
rate dropped by over 50%. The stock market doubled, and household net worth
expanded by $8 trillion.
The Obama administration believes that
increasing the size and scope of government is the path to prosperity. In
2009, rather than allow large banks, insurance companies, mortgage companies
and Detroit automakers to fail due to market pressures, Obama nationalized
them using taxpayer dollars to bail them out. That same year, the
administration projected its new stimulus package would “create 3 to 4
million jobs.” But most of the funds went to state governments that
used the windfall funds to close their own budget gaps. Few permanent jobs
were created. The private sector jobless rate actually increased.
So which is the path to prosperity? Gold
and silver prices give the answer. Gold had quintupled during Jimmy
Carter’s recession; gold and silver hit new all-time highs under Obama.
Gold prices fell 40% (from $750/oz to $450/oz) under Reagan’s 8-year presidency.
The price of gold has nothing to do with
political ideology or government reports on the status of the economy. The
gold market sifts through the myriad of economic data, investor sentiment and
global events to measure reality with crystal clarity. Gold is trading at
all-time highs, in direct contradiction to reports of sustained growth in the
world’s largest economy. It just might be that massive deficit spending
and easy money policies have little or no stimulative
effect on the economy and that government spending does not create jobs in
the private sector. Because the government must tax or borrow in order to
spend, it takes money from citizens and businesses that otherwise would go to
consumption, savings or investment to produce more wealth.
Likewise, the gold market shows
government reports of low inflation and growing employment to be false. We
have seen on these pages before that actual US inflation is closer to 10%
than the reported 2.1%, and the actual US unemployment rate today is 14%, a
rate not seen since the 1930’s.
Re-election campaign politics from the
bully pulpit further distort economic realities. The administration cites an
increase in US oil production, while it thwarts added production (and new job
creation) by rejecting new drilling permits and the XL Pipeline project. The
administration cites 2.3 million new jobs were created through its renewable
energy initiatives, at the same time that government-backed alternative
energy companies Solyndra and Fisker
Automotive go bankrupt, and GM suspends Chevy Volt production for lack of
demand for the expensive, short range electric car, having wasted billions of
taxpayers’ dollars. Last week the Supreme Court took up the
constitutionality of the individual mandate and other provisions of the
Patient Protection and Affordable Care Act (Obamacare)
while earlier last month the CBO reported that the cost of implementing the
federally mandated universal healthcare program has nearly doubled to $1.76
Trillion over the next ten years. More distortions in the name of re-election
are surely coming our way. As Diogenes, one must lift his lamp and be ever on
the search for an honest man. There are none in power in Washington today.
Responsible citizens and prudent
investors protect themselves and their wealth against the ambitions of
over-reaching government authority and debasement of the currency by owning
gold. Gold is honest money. Investors from around the world benefit from
timely market analysis on gold and silver and portfolio recommendations
contained in The Gold Speculator investment newsletter, which is based
on the principles of free markets, private property, sound money and Austrian
School economics.
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