Political Class Dismissed

Guest Column by Joseph O’Donnell

Reverting to the articles of confederation is a great idea. It’s the logical direction for the US national government. Also, it may be an easier alternative than secession for individual states. Instead of voting to secede, each state can vote to revert.

If a state votes to revert, it could remain a cultural member of the US but not a constitutionally bound member.

If an energetic campaign for a reverting vote is launched now, it could very well succeed for multiple states by next November, given what is bound to happen between now and then.
I would add that in order for a reverted state to save itself economically, it’s citizens will also have to immediately institute gold and silver as money, and outlaw government control of banking and money.

Even with reverting and gold as money, it will probably still take at least a couple years at best for a state to recover to 1998 real GDP levels.

Jim asked for an economic analysis in a previous post. I subscribe to the Austrian school which is based on logical analysis of individual human action, instead of calculations based on assumptions about group behavior. Since individual human action can never be known in advance, this is a guideline rather than an exact prediction.

First here are 10 facts, and then some logical conclusions based on those facts:

1. The US government gets most of it’s money from selling bonds to the China and Japan central banks and other investors.
2. US government spending and regulations make up a large percentage of the US economy.
3. The average US citizen has almost no savings.
4. The amount of US dollars in circulation is determined mainly by US government and Fed policy, and also by the policies of Japanese and Chinese Banks who hold dollars.
5. Historically when the US government prints money, the resulting inflation usually shows up in consumer prices about 6 months later.
6. The US has a large trade deficit and it’s economy is based mostly on Americans selling services to each other, rather than manufacturing physical products.
7. The US government started printing at least 1 trillion dollars 2 months ago, and effectively promises to print 6 trillion more.
8. A dollar from 1980 lost %60 of it’s value up to today and the US government debt is 10 trillion.
9. US national GDP is 13.8 trillion.
10. The Obama administration is promising radical economic action and will likely do so very quickly.

This means they will probably print and spend all 6 trillion within the first year, and impose heavy regulations.

Given these facts, here’s what I deduce will likely happen:

The Obama administration will print and spend trillions of dollars in it’s first 3 months. During this period, the Chinese and Japanese banks will keep buying bonds, mostly out of fear and desperation, and this will prevent an extreme collapse from happening. Instead it will look like a normal severe recession.

After 3 months, massive inflation from the first trillion printed in October will start to happen. At that point, a vicious cycle and tension will happen, which when it ends can only mean the largest economic restructuring in history. US consumers will quickly become nervous about food and other prices. The Obama administration will impose price controls leading to shortages. At that point, there will be a 3 way race for which factor will cause an economic implosion first, and the 2 main victims of that implosion will be the US economy and the US dollar. Both will have to be rebuilt, or far more likely completely replaced, from practically the ground up.

The 3 factors:

1. The pressure on Chinese and Japanese central banks to a) stop buying bonds and b) get rid of all their US dollars anyway they can. Worker riots versus government control in those countries will likely be a big factor in this. Right now they are something like indentured servants to the US and US dollar system.
2. Political turmoil and ever more government regulation desperation measures in the US.
3. The natural dispersion of the US economy as the dollar loses value and the lack of effective production capacity is revealed.

It’s hard to say which of those 3 will be first, especially since they all influence each other. I’m guessing that 9 months from January is the limit on when the implosion will happen. Hyper inflation is pretty much guaranteed by that point because that will be about 6 months after most of the 7 trillion will have been printed. The inflationary printing of US dollars was covered in the past by Chinese and Japanese bank bond buying, but that mechanism can only work when inflation is kept below a certain point and blind faith in the US is maintained. Both those factors are currently being obliterated.

After that it will be a contest between starvation, martial law, the reverting vote, and the ability of the by then illegal underground economy to create a production capacity.

The inflationary causes of the great depression aren’t widely understood because of both propaganda, and because the government switched from inflation to regulation after the collapse had already been started by inflation. Towards the end of the inflationary period, dollars seemed scarce because the economy had ground to a halt, and the government didn’t inflate past the hoarding from fear level. I think that’s similar to what’s happening right now. However this time the government Will inflate past that point, because government influencing ‘experts’ like Krugman wrongly believe lack of inflation caused the great depression. So this time it will be a catastrophic hyperinflation implosion, rather than an inflation instigated and regulation extended ‘deflationary’ depression. The critical factor is that the fiat dollar as leading currency system is fake, deceptive and none productive, and supported by politics, propaganda, war and inertia only. This is what has happened to every fiat currency in history. Not printing money, closing military bases and phasing in gold could certainly help, but that’s unlikely to happen politically.

I expect that sometime this year it will become illegal to make statements like the above. However making these statements now is a good gamble to avoid starvation later.

Btw-another possibility the government may conceivably try to avoid the implosion, is to start selling the businesses it is appropriating directly to the Chinese and Japanese banks or the Saudis. Thus essentially selling Americans like indentured servants to foreigners.