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The Quiet Revolution

The government's attempt to inflate the money supply won't work if the people won't buy.

by James Leroy Wilson
December 18, 2008

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The Quiet Revolution

We have an interesting paradox.
Oil prices fell over $100 in the past five months, leading in a sharp drop in the price of gasoline to under half its summer highs.

But according to Simmons & Company, even when the price of oil was over $140, it was too low. If nothing else, oil producers need massive refurbishing of their infrastructure; the oil wells are getting rusty. And we don't really know how much oil is left in the world.

But consumers will not hear of it. Gas prices got too high for their tastes and needs, so they drove less. And fears of recession and the disappearence of jobs and savings caused people to spend less, curtailing demand of the goods which require oil to be shipped to them.

At the same time, the Federal Reserve cut interests rates as far as they can be cut. They're betting the low price of oil will hide the inflationary effect on the dollar. Yet, upon news of the Fed rate cut, the dollar dropped to two-months lows against international currencies.

Meanwhile, the price of gold jumped $100 in the past ten days.

And of course, this Autumn we saw $400 billion deficits jump to over a trillion as Congress decided to bail out Wall Street. And Obama is proposing a trillion more in spending. Just as the Fed thinks it can lend our way to prosperity by printing up dollars out of thin air, Obama thinks the federal government can spend its way to prosperity.

The question is, well the people fall for it?

Obama may enter the Presidency with high approval ratings, and he may sustain them for a lengthy honeymoon period if people like his rhetoric and believe he is "doing something" to "fix" the economy.

But Obama can't force people to spend their own money if they don't want to. If Obama throws money on "infrastructure" (which used to be called pork), will that mean vendors will start ordering more from suppliers? Is it poor roads that prevent goods from being shipped?

Nonsense. Goods aren't being shipped because they're not being ordered, and they're not being ordered because nobody wants to buy anymore. They'd rather hunker down and pay off debts. Better roads would be nice, but poor roads aren't the cause of our economic woes.

And even those who are hired via public works projects and other deficit-enlarging "stimulus packages" won't necessarily be spending much more than they would have if they still lived off unemployment checks. They, too, will probably be focused on getting their own financial house in order.

Only the people, by refusing to spend on what they don't need, can drive prices down. The price of oil may very well be too low right now, but the people are in no mood to seeing it rise. In the same sense, the government may try to jumpstart the economy through inflation and deficits, but if the people refuse to spend the newfound dollars circulating in the economy, prices won't rise.

The people ultimately drive any market. The market is itself a form of democracy. You can withhold your "vote" (i.e., dollars) if you believe something is too expensive. If necessities do see a price rise, you can stop spending on non-necessities.

And I suspect this may happen. The country may very well go into a "Depression," and a President Obama may start desperately grab-bagging for solutions as Herbert Hoover and Franklin Roosevelt did from 1929 to 1941. Just because Obama or the Fed makes more money available won't mean the people will use it. The people may say they like Obama, but if they fundamentally distrust the financial system, there's nothing the government can do to rescue it.

The Quiet Revolution will involve the people acting in their own self-interest and putting an end to unnecessary consumption. And the result of this Revolution will be a new financial system. One based on created wealth, not on borrowing to finance future wealth. And one that doesn't rely on government debt and inflation to survive one day to the next.

If the people work together to make sure that no one starves or freezes to death in the meantime, this Revolution against excessive consumption may very well create a more sustainable economy, a better environment, and a stronger civil society.

Comments (3)

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elm from 98801 writes:
December 18, 2008
Things aren’t going to be getting better anytime soon and ( out of fear ) indeed as you say - consumers are tightening their belts. History could repeat itself if in protest We, The People, revolt and refuse to buy. Past revolts over the tea tax, the whiskey tax didn't end up making things better after all was said and done. We are the taxpayers, government's serfs and slaves.

Our US government obtains the money to meet their obligations by taxes. We all know too well that taxes are mandatory and that failure to pay could mean --seizure of goods, property, wages garnished or jail time. (or even your first born child) Protest and revolt carrys with it the probability that government could subject its citizens to higher and higher taxations.

Of course the money U.S. government is running off today to save those elite/select corporate Americans is inflated. Noone is interested in bailing out the poor failing Mom and Pop grocery store around the corner and down the alley from Main St. If they keep bailing corporates they will run out of printer's ink before I do. Right now I still have the luxury of being able to pay $30.00 bucks a crack for a cartridge at Office Depot. Hear me squeal!! I protest every time. The only bailout for me on Social Security would be to get writer's cramps. :-)

Some history: August 15th, 1971 Pres. Nixon eliminated any vestige left of the gold standard; dollar no longer backed by illusion of gold became entirely an obligation of the United States government. U.S. meaning us!! Removing any real backing for any currency amounts to theft. Allowing government to print money at will, --devalues any existing currency; that in your wallet or bank account.

Henry from USA writes:
December 18, 2008
We're selling off the ship for firewood to keep the engine turning. When government bails out institutions and nationalizes failed enterprises, they only increase long-term inflation. They have to pay for those bailouts and government turns to taxpayers to fund expansion of credit. By interfering with capitalism’s natural progression, government putting forth worthless funny money, the government delays its own financial reckoning. This will lead to more use of alternate local currancy which is not a new concept. Presently, some 2,000 local currencies are being used all over the world, a practice that tends to burgeon during economic downturns. During the Great Depression, scores of communities relied on their own currencies. Alternate community currancy is completely legal as long as communities don't create coins, or print bills that resemble federal dollars, organizations are free to produce their own greenbacks that don't have to be green. Right now Milwakee, Wisconsin is in the planning process of considering going to alternate currancy.

Steve Scott from Martinez, CA writes:
December 18, 2008
Seems like there ought to be a Yogi Berra quote in here somewhere. Now if people could only vote at the ballot box the way you're talking about here.

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