The coming US dollar collapse

[skipair]

Since Ron Paul has been getting more headlines in the states, I've come across a lesser known economic theory called Austrian Economics. I've started doing research and it seems much more reasonable compared to today's Keynesian economics.

For one, Austrian economists predicted today's US recession while Keynesian's did not, and they are also predicting this is just the beginning. In fact, they say the final result will be the collapse of the US dollar and a depression worse than the Great Depression of the 30's.

The general theory is that free market forces are inherent, mostly unpredictable and uncontrollable. There will be some ups and downs due to new technologies or seasonal products, but by and large the sine curve is fairly flat (baring war debt or weather calamity). They say the reason we now have economy wide business cycles of booms and busts is because we use fiat, paper money that has no intrinsic value, and which allows governments to control the money supply and tamper with free market forces.

Booms are initially caused by government distorting risk values in the market so that people put more investment into particular sectors that they otherwise wouldn't. For example, when Clinton lifted the restrictions of government and business interplay, allowing Freddy and Fanny to sell mortgages with government insurance backing along with artificially lowered interest rates, speculators took advantage of the guarantee and the housing market boomed. This would otherwise not have happened if the government didn't set the stage for it.

Or for example, the government pays people to build houses in hurricane/flood-prone areas where they otherwise wouldn't.

And when the risk is finally revealed to be higher than expected and banks fail from lending too much regardless of the government backing, or a flood sweeps away your house regardless of being paid to live there, then the malinvestments are discovered and a recession begins.

Recessions are GOOD. They are the healing process that gets the economy back on track after the unnatural, government-caused boom. And if left alone, re-corrects in a relatively small amount of time. Unfortunately, (if Austrianism is correct) most economists in the media and advising the political leaders are Keynesian economists. They do not make the above connection of ultimately government-cause recession and take a more socialist line of thought that places blame on a failure of the free market.

So what they do is they interfere MORE with the marketplace by creating social programs and flooding the market with printed money to try and take care of the people in hard times and to stimulate the economy. So instead of healing, the artificial boom is temporarily prolonged, like starting to sober up and then drinking another bottle. Or a fire that would otherwise burn out by itself gets gasoline dumped on it. Otherwise, once the people eventually and naturally liquidat their debt they'd be fine. But instead, the tax money the govt takes in doesn't allow them to afford the social programs, nor can they afford just printing billions of dollars for a economic "stimulus" package, and thereby they lower the buying power of the dollar and the people suffer.

So now the standard of living decreases and manufacturing businesses leaves the States to find healthier markets. The people use credit to buy things that are now all imported and they work by day entirely in the service industry. This creates an enormous trade deficit where the US imports more than it exports, where it consumes rather than saves, and where it borrows and goes into debt over insignificant merchandise over lending for profit and investing in future growth.

For the US government to afford the wars and welfare state it borrows money from other countries, then borrows from other countries to pay the original countries, and in the end just prints the money to pay it off, regardless of devaluing the dollar and thereby dumping the burden on the American people.

Just like a debt-addicted friend that always asks for money without contributing anything, the USA is going to eventually stop getting bailed out by China and the rest of the world. The other countries are going to realize that they don't need to prop up the USD to sustain their own economy. Instead they will take the money they give to the USA and keep it in their own country, and after a brief stress period, have a natural, free market boom.

Meanwhile, the USD will fall through the floor. That is, unless the powers that be allow Ron Paul (the only non-Keynesian) into the office. The solution otherwise is to get out of the USD and invest in stable foreign commodities in Europe and especially Asia (and especially China). Or move.

Sources:
Mises Institute - http://mises.org
Crash Proof 2.0 - Peter Schiff
End the Fed - Ron Paul

[Tomas]

I'd first heard of Murray Rothbard via Lew Rockwell website eons ago :-)

NOTE: Articles change daily
http://www.lewrockwell.com

[skipair]

Great Tomas. Speaking of Rothbard, here is a short essay of his explaining the philosophical foundations of Austrianism:

http://www.mediafire.com/?ng2i4mq1rdy1373

[eyekwah]

Thomas Jefferson said that the day in which the people of a country realize they can vote themselves money out of the treasury is the day when democracy fails. The American people obviously demand help from their government, but it should be the government's job to say no. Rather, the current trend is to say "Yes, absolutely! Vote for me next September!" instead. Until we get a politician willing to make the hard decisions nobody wants, the country is ironically going to continue to spend in order fix problems with spending.

Which leads to a rather strange conclusion: the perfect American president is one that isn't going to be well-liked. That isn't to say an unpopular president is going to make a perfect one, simply stating the reverse is true.