Friday, December 26, 2008
Why the Economy is a Giant Bubble
The dreaded “R” word, recession, has been on many people’s minds lately. The media and government have done somewhat of an amazing trick–they’ve convinced the people that recessions are inheritently evil and destructive. Part of this sources from the fact that we have a phony economy. Our economy is not based off how much we produce but how much we consume. Look at the credit crisis–when was the last time we had a credit crises because people were investing in too many factories, plants, businesses, and venture capital? Borrowing for production isn’t a bad thing, but borrowing for consumption only leads to wrecklessness. And that is just what we have been told for the past 20 or so years–we must consume. You don’t hear about the producer anymore: it’s “the consumer.” If we aren’t sliding tha plastic and borrowing to keep up with your broke neighbors who look rich, you’re not living the American dream. Because of this, we’ve created what appears to be an incredibly powerful and unstoppable economy. There is one Achille’s heel to this, however. In order to consume, you have to have products. Because of so many federal restrictions on the marketplace, it’s much easier for investors to outsource to places like China. They’re the ones who produce the goods and, consequently, are the real engine of the economy. Americans are, as Peter Schiff put it, not the engine of the global economy but “the caboose.” To get all our ipods and computers and digital cameras we have to buy them up from China. The only problem with this is that we essentially pay them with green I.O.U’s–the American dollar. Now, the government and its child,the media, have convinced the people that the dollar is the impenetrable, forever-sturdy reserve currency. The only problem with that argument is that in order to keep up consumption, we have to expand credit. How do we do this? We inject artificial growth into the economy. This is not paid for with taxes but with inflation. The Federal Reserve, America’s central bank, simply prints its way out of debt. Each dollar we spend is literally eroding in value over time. You would think the Asians and the rest of the world would figure this out. They, for all practical purposes, have no incentive to exchange their valuable goods for increasingly worthless pieces of paper. It’s only a matter of time before this happens. Sooner or later the Chinese will realize that they don’t have to sell their goods to America to get rich–they can consume them themselves. It’s this day that they stop investing in the dollar and start investing in their own currency. When that happens, the U.S. dollar, mainly supported by foreigners, will come tumbling down back to earth. All those great presidents who did everything they could to save America, will be mere images upon worthless paper. It is a great shame what we have done to what was once such a great economy.