Today offers a unique opportunity to witness the unraveling of an economic order unlike anything we’ve seen before. The current landscape is reminiscent of the chaotic final days of Rome, when Nero recklessly manipulated the currency as disaster loomed. The current political climate is filled with questionable leadership that seems equally detached from reality.
John Maynard Keynes, a pivotal figure in modern economic theory, insightfully noted in his 1919 work, The Economic Consequences of the Peace, that “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” His observation, which he credited to the central planner Vladimir Lenin, reflects the severe pitfalls we face today.
Fast-forward nearly a century, and we find ourselves in a situation where our currency has been significantly undermined, and the foundations of our society have shifted dramatically. This was painfully evident during the recent Presidential debate.
A Big Fat Ugly Bubble
There’s a saying that the populace gets the President it deserves. A conscientious society deserves a leader of integrity, yet we find ourselves offered a disheartening choice between two inadequate candidates.
Certainly, Trump has drawn attention to the economy and the Federal Reserve’s role: he even made a genuine effort to highlight the Fed’s harmful policies.
He remarked, “Now, look, we have the worst revival of an economy since the Great Depression. And believe me: We’re in a bubble right now. The only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down.”
He continued, “We are in a big, fat, ugly bubble. And we better be awfully careful. The Fed is doing political things. Janet Yellen at the Fed is behaving more politically than Secretary Clinton.”
Unfortunately, many people fail to grasp the implications of Trump’s comments regarding currency debasement. As Keynes explained, “The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
What is more evident to the average worker is the diminished value of their paycheck. Many also face the harsh reality of a job market that offers little hope, highlighting the grim prospects ahead.
Mass Money Debauchery
Thanks to cheap credit from the Fed, financial markets are now inflated beyond what the real economy can support. As Trump cautioned, “When they raise interest rates, you’re going to see some very bad things happen.”
In a nutshell, the Federal Reserve has become irrelevant. While we may not endorse its existence, it’s clear that they should have raised interest rates long ago.
The Fed’s policies have not prompted genuine economic growth; instead, they have created a distorted financial landscape that will react violently when interest rates eventually rise.
This means that any investments you have in bonds, stocks, or real estate are at risk of significant loss. What then?
Already, central banks like the Swiss National Bank and the Bank of Japan have resorted to borrowing money to purchase stocks. The European Central Bank is contemplating similar moves.
Moreover, on Thursday, Fed Chair Janet Yellen suggested that there might be advantages to allowing the central bank to buy stocks as a measure to bolster the economy in a downturn. If this isn’t madness, we struggle to fathom what is.
Sincerely,
MN Gordon
for Economic Prism
