Daily Archives: September 3, 2010

Dollar debasement and its eventual loss of purchasing power

The Federal Reserve and the banking system have been monetizing (buying) U.S. government debt at an accelerating pace. So why haven’t we seen greater increases in prices?

The fact is, some prices, like food and energy, have increased over the past 2 or 3 years. Having lived much of that time abroad, I notice it when I return. The reasons why price increases have not so far been more general are (1) the unemployment and business failures have left a large portion of the population with reduced incomes. Their diminished ability to buy and consume has offset, to some extent, the increased volume of dollars being lavished on the military, industrial, and financial sectors, (2) it takes time for those dollars to trickle down from the favored recipients who get to spend them first, and (3) the savings rate has gone up because in a depression, such as we are experiencing, people who do have money are more cautious about spending it. These savings are largely absorbed by government borrowing but they will never be sufficient to forestall debt tsunami that is building up. Add to this the fact that the rest of the world seems no longer willing to finance U.S. government deficits as they have in the past, and the outlook for the dollar is bleak. There will be no alternative to massive monetization.

A useful article titled, The U.S. Path to Collapse, was posted recently on the website of the National Inflation Association.  Unfortunately, they blame social spending like unemployment insurance, social security and medicare for the budget deficits, but ignore the massive spending to maintain the American empire and the pursuit of “full spectrum dominance” around the world. –t.h.g.