Obama's Weimar Republic Solution To The Meltdown: Hyperinflation!

(( See Cabaret. Then, Triumph of the Will. Then-any good documentary
of the Ploiesti Raid. For we CAN'T take the whole world on a second
time-deindustrialization and economic and biologacal debauchment have
guaranteed that. Bret.))

Obama's Weimar Republic Solution To The Meltdown: Hyperinflation!

By Patrick J. Buchanan

"The best way to destroy the capitalist system is to debauch the
currency," said Lord Keynes.

Ben Bernanke disagrees. A student of the Depression, the Fed chair
appears far more fearful of deflation a vicious cycle of falling
prices, debt defaults, home foreclosures and rising unemployment.

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
money. As Milton Friedman, who won a Nobel for his thesis that the
Federal Reserve caused the Great Depression, 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 utterly
unnecessary.

"(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 depression.

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.

"The first panacea for a mismanaged nation," said Ernest Hemingway,
"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 opportunists."

Which brings us to last week's shocker.

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 lending again.

Bernanke is printing money to buy U.S. bonds.

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, "Happy 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."

(( See : Greenson, Ralph. Bret.))

http://vdare.com/buchanan/090323_hyperinflation.htm

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