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“Change” Has Come to America?

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The current financial meltdown has its origins in a presidential act that took place in 1971. In that year, through presidential directive, the United States defaulted on its obligations under the Bretton Woods system. Because the Vietnam War and LBJ’s Great Society required large expenditures on the part of Uncle Sam, inflation and a devalued U.S. dollar resulted. The problem for the U.S. at the time was that foreign countries could demand gold in exchange for devalued dollars. Naturally, this is exactly what they did. Fearing a complete depletion of U.S. gold reserves, Richard Nixon closed the gold window and began the age of the fiat dollar.

With the Gold Standard out of the way, the federal government could monetize even larger amounts of debt. In 1971 the national debt of the United States was $425 billion. At the end of 2008, the national debt exceeded $10 trillion – a 2252 percent increase in 38 years! Naturally, this mammoth increase in debt did come at a cost to our economy. For one thing, every dollar in debt the government monetized was one dollar less that could be used by industry to grow the economy. Another cost was inflation –- the erosion of savings and purchasing power. From 1792 to 1971, the average yearly inflation rate was .7 percent. From 1972 to 2008, the super monetized debt era, the average yearly inflation rate was 4.66 percent. This increase in inflation contributed to the ballooning of household debt during this time period. If things cost more money and savings isn’t worth as much then debt is likely to increase. In 1971, U.S. household debt was about $500 billion. In 2008, the number ballooned to about $14 trillion – a 2700 percent increase in 38 years!

Spending sprees, whether personal or governmental, can’t last forever. The depression we are heading into is the hangover for our binging. Taking the debt numbers from above into account, we are headed for the mother of all depressions.

The funny thing is that Washington has tried very hard to avoid depression. It has done it through, you guessed it, more monetized debt. It is as if policymakers at the Federal Reserve, Executive Branch, and in Congress have no creativity or memory. They have spent trillions of dollars to stimulate the economy out of the current financial crisis. What we have to show for it is a record number of Americans receiving jobless benefits, many well-known brand names on the brink of bankruptcy, and an assets market that has already lost trillions in value and continues to flounder.

Then on January 20, 2009, Barack Obama, the man that promised us “Change We Can Believe In”, was sworn in (well, sort of) as president. What was one of his first priorities? — to monetize over $800 billion in new debt to stimulate the economy. This is the same exact thing we have been doing for the last 38 years. Isn’t one definition of insanity to repeat the same action over and over again expecting a different result? But, it gets worse. Obama’s stimulus bill is packed with spending that doesn’t have anything to do with economic recovery. Washington can’t even make it look good anymore. The spending proposals include: $420 million to battle avian flu, $335 million for programs to combat AIDS, VD, and TB, $2 billion for Head Start, $10 billion for science facilities, and $6 billion to bring high-speed Internet to rural and underserved areas. If this is change then I am a communist.

We do need change in America. We need to change our political leadership and install statesmen that can think outside the Keynesian box. We need to change our expectations of what government can and should do. We must return to the limitations placed on Washington’s power found in the Constitution. We need to change our monetary system. The Fed should be abolished and our currency should be backed by a scarce commodity. We need to change our personal habits. Many Americans need to learn there is no such thing as a free lunch. The bills eventually come due as is being proven through this impending depression. Finally, we need to change our economic system. We need to reject the statism, socialism, fascism or whatever ism you want to call it of at least the last 38 years and reinstitute a free market system. That free market system would pay its bills, reward merit, and penalize misbehavior. If President Obama genuinely wants to fulfill his campaign pledge to “Change” America then he can start with this blueprint.

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About Kenn Jacobine

  • Hope and Change?

    Its Official —- This IS the second term of the Carter administration…..

    NAIROBI, Kenya (AP) — Kenyan police say the half brother of President Barack Obama has been arrested for possession of marijuana.

    Area police chief Joshua Omokulongolo said George Obama was picked up Saturday and was being held at the Huruma police post in the capital. Omokulongolo said officers found one joint of marijuana on him.

    Remember Billy Carter? Now we have “Georgie” Obama

    Hopeless and Changeless!

  • The amount of “monetizing” that has been going on in the last six months is staggering. I’m waiting for the axe to fall, and it will.

    We need legislators who are not in office to make money, but who are altruistic and with common sense. Our political landscape is littered with smart attorneys who don’t have a clue about economics.

  • Not “altruistic,” Joanne, but truly concerned. But yes, the ax will fall. It won’t be till then that we’ll wake up.

  • Lisa Solod Warren

    On joint. Wow. That’s huge.

  • Lisa Solod Warren

    Sorry. Meant to say one.

  • What do you mean, Lisa?

  • Bliffle

    Actually, the gold standard had to go. If you try to operate a growing economy and a growing population on a fixed amount of money then either the gold value (as well as it’s proxies, like dollars) will balloon extraordinarily until the economy flies apart from imbalance. or you have to adjust monetary exchange amounts, which Nixon initiated. But the people in charge of monetarization must be near saints, and we’ve not made very good choices. Leaders have often picked politically expedient characters like Alan Greenspan.

    This doesn’t make sense:

    “For one thing, every dollar in debt the government monetized was one dollar less that could be used by industry to grow the economy.”


  • So what’s your suggestion?

  • I don’t know if Bliffle agrees, but it seems clear that a money supply tied directly to GDP is about as reliable as one tied to gold and it’s a more valid relationship.

    When GDP goes up you have the ability to expand the money supply. When GDP goes down you need to contract the money supply in proportion. Our current situation with GDP going down at the same time as a massive expansion of the money supply is a recipe for disaster.


  • It seems to make economic sense, Dave. But how do you alleviate the human cost in terms of growing joblessness, devaluation of the property, things like that?

  • Hope and Change?

    Why isnt the media ripping Daschle, apart! I heard the editor of Newsweek actually defend him on MSNBC! All you have to do is look at Daschles, s voting record…he voted for almost every tax increase

    Voted NO on $350 billion in tax breaks over 11 years.
    Voted NO on across-the-board spending cut.
    Voted NO on requiring super-majority for raising taxes.
    Voted YES on blocking medical savings acounts.
    Voted NO on Balanced-budget constitutional amendment.

    In addition the National Taxpayers Union (NTU) – Daschle scores 15% by NTU on tax-lowering policies

    I guess he didnt care since he didnt plan on paying them!!!!

    “Alibaba Obama and his band of thieves (and tax cheats)”

  • zingzing

    you know, i would probably had read this thing if our good buddy h&c hadn’t so throughly made this cliche totally annoying by now.

    maybe i can stomach it later.

  • Hope and Change?

    you know, MORE PEOPLE would probably read and post on this thing if our good buddy ZING wouldn’t be so annoying with his Democratic talking points and MSNBC regurgitations.

  • It seems to make economic sense, Dave. But how do you alleviate the human cost in terms of growing joblessness, devaluation of the property, things like that?

    Well, theoretically when you cut back on the money supply it should cause things like property values to go up and prices to go down, counteracting the effects of a decline in GDP.

    The question is whether this approach can work when there are radical fluctuations in the economy.


  • So you’re saying, the system MIGHT right itself, eventually? In that case, we’re just going have to go through a period of depression before things get better. Am I right?

  • zingzing

    that makes no sense, h&c.

  • Hope and Change?

    The economy is like an addict…before they can change their behaviour they have to bottom out…then get into a rehab clinic, 12-step program and change their life…Our government can never do that!

    Lets all now join hands and pray –

    God grant me the Serenity to accept the things I Cannot change…

    Courage to change the things I can

    And Wisdom to know the difference…

    Our elected officials arent smart or feeling enough pain (eating $100 steaks while talking about the 29,000 lost jobs) to truly make any significant changes…

    “Accept the things I cannot change”…PORK PORK and more PORK

    “Courage”…..LOL…King Barry’s Court and the Repubs are a bunch of cowering children

    “Wisdom”- LOL….

    Hope and Change….really now!

  • “The economy is like an addict…before they can change their behaviour they have to bottom out…then get into a rehab clinic, 12-step program and change their life…”

    You know, I agree with you there. A very apt comparison.

  • “that makes no sense, h&c.”

    why should he start now?

  • It’s never too late, El Bicho.

  • Publishing an article with that title where H&C can see it is like putting a fifth of whisky in a recovering alcoholic’s lunch bag.

  • Hope and Change?

    El Bicho…it takes time for people to see and understand the truth…but soon you wll too!

    Hope and Change…a false promise to the fools who believe him!

  • “it takes time for people to see and understand the truth”

    That’s another example of the recovering alcoholic’s moment of clarity!

  • Hope and Change?

    Yes when the Obama worshipers cannot refute the facts of the message they attack the messenger…isnt that right Dr.Dreadful?

  • Hope and Change?

    Very good Roger!

  • The usual human foible.

  • What message, H&C?

    The one where you hate Obama and will make sure to bring it to everyone’s attention if he so much as forgets to tie his shoelace?

    ‘Coz I think we got that one…

  • I always try to fair, H&C – even with my ideological friends.

  • But he’s no exception. We, too, have done our share demonizing George Dubya. So maybe it’s payback.

  • Hope and Change?

    “forgets to tie his shoelace?

    “Ahhhhh HA! The chosen one fails again!!!

    Prediction – in 9 months America and the world will long for the W years!

  • Very good article, Ken. But don’t you think that abuses by the corporations and in the financial market were, to say the least, important catalysts? And how would you explain the surplus during the Clinton years? Was it all phoney?

  • This article over-generalizes and over-simplifies. It’s not as though the Fed hasn’t tried all the other weapons in its arsenal before this stimulus bill. The Fed’s interest rate is in effect zero…it can’t go any lower.

    The author seems to assume there is some magical solution we just haven’t thought of yet, which makes it ok to spit on each attempt at dealing with an unprecedented situation [first TARP and now the stimulus and soon TARP II and III].

    But there is no magic, just human beings trying what they know against powerful and unpredicable forces. Smart people on Wall St failed to anticipate the meltdown, and smart people in the Bush administration [meaning Bernanke and Paulson] went against their own conservative tendencies to try a Big Solution which was at best partly successful.

    Now some more very smart folks in the new administration are trying to deploy one of the few weapons government has left, namely an injection of spending into the economy. Liberals say it’s far too little; conservatives say it’s far too much. (Does this mean the adminstration got it about right?)

    The would-be critical analyses of all this by Kenn Jacobine and Dave Nalle are just too simplistic, assuming that all massive government spending is inherently bad. And the ‘solutions’ Nalle confidently offers as an alternative are based on ideology and theory, not on the real world.

    It’s just too damn easy to sit on the sidelines and mock every statement and action by government officials. But it’s what we prefer to do in the blogosphere – it’s what we’re good at.

  • Handyguy,

    Good comments. But I think one point of the argument is that the Keynesian approach – which more or less worked during the Great Depression – may no longer be effective given the severity of the crisis and all-global implications. Of course, the suggestion that all we need to do is to re-institute the free market system is too simplistic by way of offering a real solution.

  • There’s something scary and irrational in the current meltdown – and this seems to have something to do with why so many officials and executives, left, right and center, are stymied by it. No one really knows what to do.

    And it irritates me when some smartass on here says, “Well I know what to do! It’s obvious!” and then proceeds to say we should just cut taxes or something. It’s ignorant and it gets us nowhere.

  • “El Bicho…it takes time for people to see and understand the truth…but soon you wll too!”

    That you are a troll and a buffoon? I think everyone picked up on that rather quickly.

  • And yet, El B., every time someone quotes him and refutes him, they are just giving him more undeserved air time.

  • El Bicho,

    You’ve got to admit one thing. We really don’t know how to handle this.

  • You know, boys and girls, one solution to getting out of debt (that is the real question here, isn’t it, Kenn?) is killing the creditor.

    Now, if I were a Russian, that is exactly what would be going through my head. I look like a Russian, and have a Russian name – and that is what goes through my head! And if I were the Russian creditor, I would want to do to my enemy (that huge debtor with all the playstations and internet porn) before he did to me.

    I guess your compartmentalized minds (a gift of the fuckin’ Greeks, who did not believe in a Unity, and therefore did not believe in a Unity of knowledge – a mentality best represented by the “critiquant”, Brunelleschi) don’t let you see that when you are in debt to foreign countries, foreign affairs and internal economic affairs are one and the same subject!.

    Think about it.

    Screw the capitalism, the libertarianism, the socialism and all the other dipshit “isms”. First, you need to get out of debt. Then you can fuck around with all the “isms” and argue and scream whether you should be this “ism” or that “ism” or this meme or that meme or what have you.

    Your lives may depend on understanding what I’m telling you….

  • You may well be right, Ruby. Check out the other thread were they actually accused me of condoning Fascism. These global corporations have got to go – that was my only argument. But even die-hard Marxists accused me for not being a humanitarian.
    What an irony!


  • Hope and Change?

    “You’ve got to admit one thing. We really don’t know how to handle”

    THE TRUTH!!!

  • Hope and Change?

    Comments Editor


    I Hope you will Change it!!!

  • Hope and Change?

    Handy Says

    “And yet, El B., every time someone quotes him OR CHALLENGES OUR POSITIONS, they are just PROVING THAT WE ARE IMPOTENT LITTLE LIBERAL LOONS.”

  • Brunelleschi

    #1 –

    Dang, his bro wins the highest office in America and all the guy can afford is ONE joint?

    Hook a brutha up Barack!