December 4, 2008
Politicians and much of the electorate have bought into the idea that government is the main engine of change in our society. For them, the government only has to legislate more, or spend more to solve any problem and create change. The late management genius, Peter Drucker, wrote, “business is society’s change agent.” You need only think about that for a moment to see that it’s true. It’s business, not government, that brings innovation and improvements in products and services.
When we shift resources and capital from the private sector to the government, we are reducing the level of positive change from business. Public works projects funded by taxes reduce private sector investment by curtailing savings and capital formation. The government pulls the rug out from economic growth. The great economist, Ludwig von Mises, wrote, “Public works are not accomplished by the miraculous power of a magic wand. They are paid for by funds taken away from the citizen. When the government spends more the public spends less. If the government had not interfered, the citizens would have employed these funds for the realization of promising projects….”
The only major change delivered to us by the government will be the dramatic reduction of the purchasing power of the dollar. Through monstrous government deficits and reckless monetary expansion the government debases our currency. The author and TV personality, Jim Rogers agrees, “The U.S. dollar will be ‘devalued’ as policy makers seek to weaken it, undermining the greenback’s role as an international reserve currency… The dollar is ‘going to lose its status as the world’s reserve currency… It will be devalued and it will go down a lot.”
The government is trying to kick the can down the road. By attempting to resolve the crisis with the same inflationary measures that caused the crisis they will bring even more ruinous events later on. As professor Mises predicted, “The monetary and credit policies of all nations are headed for a new catastrophe, probably more disastrous than any of the older slumps.”
The worst possible catastrophe is hyperinflation, which must inevitably be followed by depression. After a runaway inflation, the treasury and the monetary authorities have no bullets left. More inflating won’t work. They cannot forestall a collapse. That’s one reason why precious metals should be the best asset to own. They go up the most during runaway inflation and down the least in a depression.