Financial Breathing

I believe we are going to see ever intensifying recessionary and inflationary spiral. During the inflationary periods, Americans will experience higher prices. These prices will be caused by more money being created and disbursed into the market, with fewer products being produced to offset this new money. Government controls will expand, causing increased subsidies with fewer people contributing. Combined with the higher prices will be higher taxes.

During the recessions, more individuals will become unemployed as basic industries contract. Many of these people will be added to the government payrolls in an effort to appease those being hurt by the system. I believe we will develop what might be termed “shear economy.” In a shear economy, one segment will boom while another will suffer. Workers in the boom industries will be able to demand higher wages, while those in a lagging industry will be laid off. The unemployed will then demand compensation from the government, which will step in with subsidies, welfare and job supports, thus creating the need for more money to be put back into the system.

It is easy to envision shortages in industries involving fuel, food, and shelter. As other nations such as oil countries, demand higher levels of affluence for their people, we must begin to relinquish some of our affluence to compensate.

In this situation, more people will depend on the government for the answers—perhaps even a national hysteria in which the government is expected to make virtually every decision.

Pressure groups will chastise government leaders whenever they make wrong decisions. Consequently officials will become less prone to make any decisions, but when forced to act, they will be more likely to just treat the symptom to pacify the people, whatever the cost. During the recessions, they will spend all the money necessary to reverse the cycle. In inflationary spirals, leaders will try to appease the people by giving them something “for nothing.” The attitude will be to deal with whatever happens to exist at that time. It will become almost a necessity for the government to have total control of the money supply through some form of nationalization of the banking interests.

Will we ever have another great depression or collapse? I don’t know. But I do know that we are evolving into a new system, perhaps precipitated by a collapse. No matter what happens, we will have another “new deal”—one that people will ask for because of devastating problems (high prices, high unemployment, money almost worthless because of inflation and the prospect of a crime epidemic).

Technological changes in the United States occur at a mind-boggling rate. New products are introduced every day. But though production is high, so is inflation. As the situation worsens, new theories develop and the government generates ideas to control recession—and then fight inflation. Unfortunately, all of these ideas are treating symptoms, and none are treating problems.

If the economy is in an inflationary spiral, the controls choke off the money supply (primarily credit) in an attempt to stop the increases. This stifles those segments of the economy that are dependent on credit, as most are. The economy then plunges into a recessionary period, and it takes greater quantities of money to reverse that trend. Each time the economy inflates, it generates higher prices. Each time it deflates, it picks up higher unemployment. What does the future hold for us economically? We will explore this in the next chapter.

Isolating the economy from any other event, a prudent observer would say that we have a problem. Notice that the United States’ economy and most of the world’s economy is very unstable.

The value of the US dollar is shrinking on the world market. Consequently, most other countries that have depended on our stability in the past are pushed to virtual bankruptcy. The economic balance has shifted to the Mideast cartel where little money is actually necessary. What does all this mean? Where are we headed?

Obviously, inflation is growing. In recent years it has increased at an alarming rate, whereas real production has dropped off. Major industries are pursuing a self-preservation attitude—some of them to the brink of disaster. Prices continue to soar while real production declines. Thus a new term has been coined, “inflationary recession” (prices increase while output declines).

Inflationary recession is not unique in the world economy, but it is unique in the United States. For years we touted our fiscal controls in the belief that it couldn’t happen here. It was believed inflation could be halted simply by reducing the money supply and recession could be controlled by the opposite technique. This is no longer credible. If we enter an inflationary period and begin to control the money supply, the economy immediately slips into a recession. Then, in order to get out, it is necessary to flood the market with additional money which in turn fans the fires of inflation even further.