"The best way to
destroy the capitalist system is to debauch the
Deflation is what America underwent
in the 1930s. A Fed-created bubble burst, causing margin
calls to go out to stockholders, who ran to their banks
that, besieged, collapsed, wiping out a third of our
Milton Friedman, who won a
Nobel for his
thesis that the Federal Reserve caused the Great
told PBS in 2000:
"For every $100 in paper money, in deposits, in cash, in currency, in
existence in 1929, by the time you got to 1933 there was
only about $65, $66 left. And that extraordinary
collapse in the banking system, with about a third of
the banks failing … with millions of people having
their savings essentially washed out, that decline was
"(T)he Federal Reserve had the power and the knowledge to have stopped
that. And there were people at the time who were …
urging them to do that. So it was … clearly a
mistake of policy that
led to the Great Depression."
Is Bernanke fighting the war of
1929 in 2009? Surely, today, with the explosion in M1,
the basic money supply, there is no shortage of dollars
out there, even if they are not circulating fast enough.
To end our recession, Bernanke may
be running an even greater risk: hyper-inflation. This
has destroyed more nations than deflation or even
Recall: It was French military
intervention in the Ruhr in 1923, to force payment of
war reparations, and Weimar`s decision to let the
currency fall and pay the French in cheap marks that led
to the wipeout of the German middle class, the
discrediting of that democratic republic and the Munich
beer-hall putsch of Adolf Hitler.
panacea for a mismanaged nation," said Ernest
"is inflation of the currency; the second is war. Both
bring a temporary prosperity; both bring a permanent
ruin. But both are the refuge of political and economic
Which brings us to last week`s
The Fed will buy up $300 billion in
long-term Treasury bonds and spend $750 billion more
buying sub-prime mortgages to remove them from the
balance sheets of ailing big banks, to get the banks
Bernanke is printing money to buy
This new gusher from the Fed, after
the $700 billion TARP bailout, comes on top of a
Congressional Budget Office estimate that this year`s
deficit will be $1.85 trillion, 13.1 percent of gross
domestic product, more than twice the share of the U.S.
economy of the largest previous postwar deficit.
Concluding the dollar is being
abandoned in a frantic Fed effort to stop the recession,
markets reacted instantly. The dollar plunge was the
steepest since the Plaza Agreement of 1985. Gold shot up
to $950 an ounce. Silver had a 12 percent run-up, the
sharpest ever. Oil prices surged above $50 a barrel.
Commodity markets advanced.
The Fed seems to have confirmed the
fears of Premier Wen Jiabao, who said that China is
"definitely a little worried"
about the value of the U.S. bonds Beijing
has purchased with the dollars piled up from her trade
surpluses with the United States.
Can one blame the Chinese? They
have already been burned on their U.S. investments. And
if the defense of the dollar against its ancient enemy
inflation is being abandoned, and protecting the dollar
is to take a back seat to the Fed`s fight to avoid
deflation, than it is indeed time to get out of the
dollar and dollar-denominated assets.
For inflation is theft. It make
liars and cheats of governments. By eroding the value of
a currency, inflation punishes savers and creditors and
rewards debtors. And what nation is the biggest debtor
of them all? The United States of America.
Insidiously, inflation consumes the
value of cash, savings, municipal bonds, corporate
bonds, Treasury bonds and T-bills. Friends who lent
America money, who bought our debt in good faith, are
robbed and made fools of, while speculators who bet
against America by shorting the dollar in the currency
markets are vastly rewarded.
Given the $3.6 trillion budget
Obama plans, the $1.8 trillion in red ink he will run by
Oct. 1 and the trillions the Fed is pumping into the
economy, gross domestic product should spike, as it did
after the far smaller stimulus package of 2008
We will feel a healthy glow, and
folks will begin to sing,
Days Are Here Again."
Yet, one senses that we are doing
again exactly what we have done before in this
generation. Rather than endure the pain and accept the
sacrifices to cure us of our addiction, we are going
back to the heroin. And this time, with Dr. Bernanke
handling the needle, we may just overdose.
CREATORS SYNDICATE, INC.
Patrick J. Buchanan
no introduction to VDARE.COM readers;
his book State of Emergency: The Third World Invasion and Conquest of America, can be ordered from Amazon.com. His latest book
Hitler, and "The Unnecessary War": How Britain Lost Its
Empire and the West Lost the World,
Paul Craig Roberts.