Land of the free, home of the brave? Yeah, right…

“Land of the sheep, home of the slave?”

Or is it
“Land of the creep, home of the knave?”

Meanwhile Uncle Sam is doing to the economy what he’s already done to civil liberties.

http://thearchdruidreport.blogspot.com/2010/11/preponderance-of-small.html

The echo of Halloween I hear most strongly in America just now is one that goes to the heart of the holiday. We pretend to be scared of ghosts and vampires and non-financial zombies, after all, because it’s a way of coping with the real terror all these things represent, which is of course our fear of our own mortality. In the same way, I’ve come to think, a great deal of the fearful predictions now surging throuigh the blogosphere and the mainstream media alike are attempts at coping with a more immediate and real fear, which – again, like death – is hidden behind a flurry of euphemisms. The one that comes to mind just at the moment is “quantitative easing.”

Many of my readers will have heard the calm and sanitized announcement this evening that the Federal Reserve Board will be buying $600 billion of US federal debt over the next seven months. I’m not sure how many of my readers have noted that this is the amount of debt the US government expects to issue over the next seven months. I’m even less sure how many of my readers have noticed that the Fed will be paying for these purchases by exercising its legal right to produce US dollars out of thin air. In other words, the United States is now printing money to pay its bills.

There may be an example somewhere in the long history of finance when a country has done this without facing catastrophic economic consequences in the fairly near term, but I don’t happen to know of one. Once a country starts covering its debts by way of the printing press, the collapse of its currency and its economy is pretty much a foregone conclusion. The exact way in which the consequences come due varies from case to case; the hyperinflation made famous by Weimar Germany and, more recently, Zimbabwe is only one of the options, and there are good reasons to think that this isn’t the most likely outcome just at the moment.

My own guess, for what it’s worth, is that we’re headed into a state of affairs that might as well be called hyperstagflation: the economy and money supply both contract, but the demand for dollars drops faster than the supply as holders of dollar-denominated assets scramble to cash in their dollars for anything that might preserve a fraction of their paper value. As in the stagflation of the Seventies, but much more drastically, prices go up while employment goes down until the economy shudders to a halt.

Now of course that’s far from the only possibility; we could see a straightforward deflationary collapse; we could also see increasingly reckless use of the printing press overwhelm the contraction of the money supply altogether and tip us into old-fashioned hyperinflation. What we won’t see for very much longer, though, is what currently passes for business as usual. I suspect a great many people in the financial community are aware of that – a supposition that gains some support from recent reports that corporate insiders in a range of industries are selling off their shares of their own companies’ stock at a record pace. I suspect the rest of us will become aware of it, too, as we approach the kind of economic, social, and (inevitably) political disruptions that people later describe in hushed tones to their grandchildren.

@FkDahl: thanks for the video, I do like it. It reminds me of some stuff the rapper Paris made. You know him? His best album is “Sonic Jihad”. Which album of Brother Ali should I get?