As Ayn Rand said “We can ignore reality, but we cannot ignore the consequences of ignoring reality” so, with apologies to Ayn Rand, let’s explore some examples of ignoring reality. (Words: 1132; Charts: 1)
So writes GE Christenson, aka the Deviant Investor, (www.DeviantInvestor.com) in edited excerpts from his original article* entitled We Can Ignore Reality!.
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), may have further edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Christenson goes on to say, in part:
1. We can ignore the (U.S. government) deficit, but we cannot ignore the consequences of ignoring the deficit.
If the deficit increases each year, the total debt will soon be so out of control that it will be unpayable. Oops, the United States is there now. The consequences that we cannot ignore are:
The budget deficit (expenses minus revenues) increases the total debt each year. A larger debt usually means a higher interest cost must be paid out of current taxes. If the Federal Reserve artificially reduces interest rates by purchasing most of the government debt, then the money supply is substantially increased and that eventually causes much higher consumer prices. Otherwise, the interest cost will rise so much that it consumes the entire federal government revenues. Higher inflation now and insolvency later or higher interest costs now and insolvency later?
If the government demonstrates that it cannot control spending, its international credit standing will deteriorate and eventually the dollar will be replaced as the world’s reserve currency.
If the dollar is no longer a reserve currency, the United States might need to reduce imports to match exports. Can you imagine paying for our imported oil with gold or exported corn?
2. We can ignore the fact that gold is real money, but we cannot ignore the consequences of ignoring real money.
Prices were stable for most of the 19th century when gold was real money but since 1971, when paper money has been backed by nothing more substantial than “full faith and credit,” prices have dramatically increased. Can you remember (even imagine) cigarettes costing $0.25 per pack or buying gasoline for $0.27 per gallon? Pretending unbacked paper money is real money has inflationary consequences.
3. We can ignore the fact that paper money always returns to its intrinsic value of zero, but we cannot ignore the consequences of that devolution.
The dollar used to be “as good as gold.” Now it is as good as a politician’s promise – an IOU backed by nothing. The dollar has not returned to a zero value yet, but history suggests it will.
Ask yourself:
“Would I rather leave 170 paper $100 bills or ten (one ounce) gold Eagles to my grandson in 20 years?” I suspect most people have more faith in gold than in paper dollars when planning 20 years into the future.
If gold will be the clear winner in 20 years then what would you choose for five years into the future? How about 1 year into the future?
Will gold or unbacked paper dollars be a better store of value over time?
If I need to buy groceries tomorrow, I will choose $100 bills, but if I want a store of value, gold is easily the better choice.
4. We can ignore the financial and social costs of welfare and warfare, but we cannot ignore the consequences of ignoring the financial and social costs of welfare and warfare.
Do welfare subsidies to corporations, foreign countries, and individuals produce enough (anything) to justify their existence? Productive activity is critical because it allows individuals, countries, and civilizations to survive and prosper.
Will squandering the results of another person’s creative and productive activity enhance either our own life or the nation as a whole?
Does making war on other countries benefit anyone besides military contractors, bankers, oil companies, and politicians? Yes, I know, the threat of a mighty military enhances the dollar’s foreign exchange value, its reserve status, and the ease with which we can acquire oil from other countries, but is that worth spending $1 Trillion or so per year?
If half or three-quarters of the welfare and warfare budgets were spent on producing things of value, like sustainable energy, healthy food, shelter, roads, bridges, better technology, efficient transportation, and good health would the United States be a better, happier, and healthier place to live if we were less focused on welfare and warfare?
If we subsidize butter, we get more butter. Unfortunately, if we subsidize welfare and warfare, we get more of both, and the costs will eventually be paid by individuals and society in general.
5. We can ignore Quantitative Easing but we cannot ignore the consequences of ignoring Quantitative Easing.
Does printing about $1 Trillion of new money every year to purchase government and banker debt sound like it will end well?
Will it be $2 Trillion per year soon?
When will it be $4 Trillion per year?
Maybe we should not ignore that we have chosen “Quantitative Easing to Infinity.” (Inflate or die!) Oops, many of our choices from the last three decades were not wise choices.
If spending ourselves $16 Trillion into debt (only the official debt – does not include the $100 Trillion to $200 Trillion in other unfunded liabilities) was not a good idea, then will $25 Trillion in debt be a better idea?
They often say, “it will work out somehow…” Yes, that is what concerns me – the specifics of the “somehow!”
6. We can ignore tax increases, but we cannot ignore the consequences of tax increases.
What if tax increases don’t increase total revenue as a percentage of GDP?
What if people find ways to avoid taxes, reduce their income, cheat, buy exemptions from congress, or stop paying taxes?
What if we increase government spending as a percentage of GDP, but the tax revenue does not increase accordingly?
Oops again, we are there!
7. We can ignore unemployment but we cannot ignore the consequences of ignoring unemployment.
The BLS (Bureau of Labor Statistics) assumes that if an unemployed worker has not found work in one year, then he is no longer unemployed. November’s tally – 540,000 people had been unemployed for more than 12 months – so they were no longer counted as unemployed. Hence the “unemployment rate” decreased. However, the total percentage of people working (Labor Force Participation Rate – see graph below) has decreased down to the level of 1983, and substantially below its peak in 2000, but the unemployment rate is “magically” lowered.
Click on image to enlarge.
If politicians want the unemployment rate to appear even smaller, maybe they should reduce the one year time period down to three months. Whatever works in politics is good – right? Oops, ignoring both reality and the consequences again!
Conclusion
Have you purchased enough gold and silver so that you sleep well [because you should never forget Ayn Rand’s words,] “We can ignore reality, but we cannot ignore the consequences of ignoring reality.”
*http://www.deviantinvestor.com/1924/we-can-ignore-reality/ (If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail.)
Many articles are being written these days that more or less scope the dire financial circumstances the U.S. is in. That being said, I had not been able to find one “analyst” – even one – who had the guts to outline the probable outcome and general hopelessness of the situation and to offer any meaningful prescription for investors to survive this coming catastrophe – until now. Words: 710
We’ve all heard countless times from mainstream economists, policymakers, and their ilk that America is somehow immune from consequences. They always pin their argument on the dollar standard. ‘Our’ central bank issues the reserve currency of the globe and that alone immunizes us from any repercussions. The 25% unemployment of Spain and Greece? The 50% unemployment among the young people in Spain? Forget about it! Never going to happen here because our paper is better than everyone else’s. Right? Sounds good, but only if you take them at their word and ignore the realities that lie just under the surface. [Let’s take a closer look those realities.] Words: 2220
We are on the precipice of enormous financial and economic change. It is not change for the good, especially for the United States. Excesses and mis-allocated resources of several generations are about to be exposed as modern industrial nations sink deeper into the economic hole they have dug for themselves. The purging of these economic mistakes will be painful, could create new wars as politicians attempt to deflect blame and may end up changing the political form of government in some countries. (Words: 364; Charts: 1)
Although our supposed leaders are presumably highly intelligent, educated, and knowledgeable, they act largely “brain-dead” as they lead the United States down an unsustainable path that guarantees eventual catastrophic financial destruction. Do you own enough gold and silver that you would feel safe in a such a financial melt-down? If not, why not? Words: 817
People riding a runaway train can party and remain oblivious to the fact that the train is about to crash into a huge obstacle. Our runaway financial train is about to destroy the status quo as it crashes into the obstacle of mathematical consequences – the inevitable financial train wreck. “If something cannot go on forever, it will stop.” [Let me explain.] Words: 974
It is relatively easy to predict further commodity price inflation as a result of the massive money printing going on worldwide and that hard assets, not paper assets, will help protect purchasing power but it is much more difficult to project where else this money printing leads and to what extent a crash is inevitable. What is the endgame? Will it be another financial crash such as in 2008 or will it be a more destructive financial and economic crash that causes a severe but temporary disruption in the delivery of goods and services? Words: 1470
QE3 looks like a desperate act to feed money to large banks, offload MBS toxic waste from their balance sheets, devalue the dollar against houses, commodities, and other currencies and create significant collateral damage in the form of consumer price inflation according to a number of respected economists and critical thinkers on the subject of QE3. [Let’s take a look at what they have to say.] Words: 1661
Financial repression occurs when governments channel funds into their own sovereign bonds in order to reduce debt levels through mechanisms such as directed lending, caps on interest rates, capital controls, debt monetization, or by other means. The promise of financial repression is that it will hold down government borrowing costs and reduce government debt levels, but critics argue that financial repression merely targets the producers of society, i.e., the middle class, and therefore harms the economy. Let’s take a look at financial repression ands its supposed pros and cons. Words: 1486
It’s easy to find analysts and investors who are certain that a deal [to avoid the fiscal cliff] will be reached, or at least that the can will be kicked down the road to buy more time. It’s also easy to find more pessimistic views that are based on the lack of cooperation in the past, and a deeply polarized country and political system. However, I think many are missing the point, which is that austerity is coming to America – taxes are going up and government spending will be reduced – [and. as such,] the United States is likely to face a recession and market correction in 2013, regardless of whether or not a compromise is reached over the Fiscal Cliff. Words: 970
With the pop from the USFed’s latest attempt at financial shock and awe already seeping from lackluster markets, and the teleprompter news networks losing steam over their promotion of the same, it is time to take a look back at the decisions made on 9/13/2012 and set the record straight on some things.
The latest round of quantitative easing (an additional $40 billion a month until conditions improve) has been dubbed as “QEternity” or “QE-Infinity” by its critics but it will end much before that. We are witnessing a massive bubble in US government debt, and we’ve reached the point where no one in charge believes it will ever end – an excellent contra-indicator. [Let me explain.] Words: 720
I like gold because it’s a risk-reducing, portfolio-diversifying asset. It’s also been a strong-performing asset over the past decade – up nearly 400%. What’s more, it’s been reliable. In 2008, when the major U.S. indices plummeted 37% (and more into early 2009), gold returned nearly 6%. In addition to being an exceptional investment, however, gold has also been an exceptional investment within a portfolio context. That is, it has provided return while reducing portfolio risk. Gold has, in essence, been a free lunch. Words: 490
Some say that the gold price rises and falls, but they are grabbing the wrong end of the stick. It is the purchasing power of national currencies that rise and fall. Here is an analogy to make this point clear. When standing in a boat and looking at the shore, it is the boat (currencies) – and not the land (gold) – that is bobbing up and down. [Let me explain the value of gold further.] Words: 631
This is not a typical bull market. Gold is not rising in value, but instead, currencies are losing purchasing power against gold and, therefore, gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow. Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if its correlation with the price of gold remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and [this] rising debt will cause the price of gold to rise to $10,000…over the next five years. (Let me explain further.] Words: 1767
Do you own enough gold and silver for what lies ahead? If 10% of your total investable assets (i.e., excluding equity in your primary residence) aren’t held in various forms of gold and silver, we…think your portfolio is at risk. Here’s why. Words: 625
Have you ever wondered what money really is [and why we need to own some gold as a result]? You’ll notice that everyone you read has a strong opinion , but who’s right? [Let look at the situation and see if we can come to an answer that we both can agree on.] Words: 3086
NOone is expecting rampant inflation. After all, the CPI is low with nothing happening in spite of all this money printing. While there has been no fallout I think that is the critical point. You cannot do these kinds of things we are doing forever and not experience any consequences. Sooner or later there are going to be consequences to what we are doing, and my fear is that it is going to be nasty, catch a lot of people off guard, and really hurt our society. That is the bottom line and why I am buying gold and silver, still, to this day. Words: 795
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consequences of ignoring reality” so, with apologies to Ayn Rand, let’s explore some examples of ignoring reality. (Words: 1132; Charts: 1)
Click on image to enlarge.
