The USA – Future Totalitarian Dystopia?

There are a number of serious political and economic questions to be asked about the future of America. In the economic sphere, we are in uncharted territory. The total supply of money in the U.S. has never been as high as it is now.

Even 10 years ago, this rate of monetary expansion would’ve been unthinkable to suggest. Now, it’s business as usual.

Such a huge increase in the supply of money should bring a term to mind: hyperinflation. However, we do not have hyperinflation. You would know we have hyperinflation, because production processes in America would basically shut down. It would be a disaster. We do not have this right now. The Median Consumer Price Index (CPI) has been flat. Prices are rising in certain respects (especially where food and energy are concerned), but on the whole we are not in anything close to an inflationary crisis.

cpi

Why do we not have hyperinflation, even though the money supply has quadrupled within the past 4 years? It is because the money is not actually hitting the market. The vast majority of these funds are stored with the Federal Reserve as “excess reserves”. Read more about it in this article. As long as the major banks keep this money as excess reserves in the Fed, hyperinflation is not a threat.

Some people believe hyperinflation is in our future. One such man is economist Thorsten Polleit:

Central banks have been captured by commercial and investment banking interests. I would assume that they will do more of the same: manipulating markets first and foremost by suppressing interest rates and printing new money to keep banks and the financial industry afloat.

With central banks running wild, we’ll be moving toward even more severe “boom-and-bust” cycles, even bigger government, less freedom and liberty, a distribution of income and wealth which is increasingly at odds with true market forces.

Central banks will become the real centers of political power. You could even say they are on the way to assuming the role of a “Politburo.” Central banks will effectively decide who is going to get credit at what conditions. They will decide which governments, which banks, and which kind of business sectors and companies will flourish or go under. The truth is that if the fiat money regime is not brought to an end — either by political will or by economic collapse — the economies will end up in a kind of socialist-totalitarian dead-end.

Mr. Polleit predicts hyperinflation to destroy civil society in the U.S. and potentially lead us into a socialist dystopia controlled by the Federal Reserve. Is this a good prediction?

The American public has an overwhelming trust in civil Government. It may not seem that way all the time. Congress, after all, currently has it’s lowest public approval ratings ever. This, however, is irrelevant. The public has faith in the Federal Government to always be there to bail them out in a real emergency. No matter how low congressional and presidential approval goes, that doesn’t change the basic paradigm, which is the Public believing that the Federal Government can ultimately bail them out of every major crisis. People may be losing faith in politicians, but they still have resounding faith in the bureaucratic leviathan as a whole.

The key term is “safety net”. The American Public loves the idea of social safety nets. Think Social Security, Medicare, and Food Stamps. Liberals openly advocate for safety net policies, while numerous mainstream conservatives support safety nets on the sly. They are backed up by the voters, who believe that civil government has an ultimate ace up it’s sleeve for every contingency, and can protect voters from negative consequences. They believe that civil government can ultimately provide salvation from a crisis in every situation, guaranteed. This is basically a religious faith: the Religion of the State.

This is why voters did not oppose the TARP bailouts in 2008. There were grumblings and snide remarks on late-night comedy shows, but nobody showed any serious concerns (except libertarian nutjobs like Ron Paul). Voters didn’t care. This is because they knew, deep down, that TARP was merely a safety net program for the major financial institutions in America. The voters understand, and correctly so, that the major financial institutions are at the core of the economy. Therefore, the policy of “Too Big to Fail” was grudgingly accepted by the Public out of an understanding that it was in the name of government safety nets. The public gripes about taxpayer bailouts, but they’d rather be hit with a taxpayer-funded bailout of crooked banks than wave bye-bye to their precious safety net programs.

The Federal Reserve is key to maintaining safety net politics in America. In fact, Central Banks in general are key to this for safety net programs across the world. All the major Central Banks are inflating their money supplies. They are creating as much money as necessary to keep the governmental wheels turning. In the U.S., the Federal Government relies on the Federal Reserve to buy it’s debt and provide funds. The public has no problem with this arrangement. They may understand that there is something deeply wrong with the way government is operating these days, but they don’t care as long as it doesn’t touch the safety net programs.

Who’s really in charge, the Federal Reserve or the Federal Government? Currently, there is no question that the government does not control the Federal Reserve. They are basically separate and somewhat equal entities. Congress leaves the Fed alone. They never approved an audit of the Fed. They don’t try to push the Fed around. They let the Federal Reserve do whatever it wants, as long as the Fed continues to buy Treasury debt. In this sense, the Fed really is the 4th branch of Government.

It is possible for this paradigm to shift. As long as monetary base expansion continues, hyperinflation does pose some type of threat although it may not be imminent. If the money piled up in excess reserves hits the market, prices will rise rapidly. Congress won’t be bothered by this. They don’t care about rising prices, as long as the Fed is still buying their debt and fueling the government machine. Congress might impose price controls and rationing. It would mitigate symptoms, but it would not solve the actual inflation problem, which would not go away.

The Federal Reserve would not stand for this for very long. It is, after all, a cartel of privately-owned banks. Hyperinflation is bad news for them. Hyperinflation would destroy the banking system. Why would the Fed want to inflate to the point of hyperinflation? It wouldn’t. That would be tantamount to suicide. At some point in a period of mass inflation, it would become obvious that hyperinflation is nigh. At that time, the Fed would cease to inflate. The banks within the Fed would not risk their own livelihood for the sake of Congress’ spending addiction.

Congress would become very upset by this. That is when it’s possible that Congress would nationalize the Federal Reserve under total Congressional control. This is the worst-case scenario. I have no doubt that Congress would drive the economy into hyperinflation to feed it’s own spending addiction. Congressmen, after all, want to be re-elected. They know protecting the safety nets programs are key to re-elections. They would seize the Fed in order to keep the easy money flowing.

So, this means that the Fed cannot stop inflation for very long. Doing so will make Congress itchy. Interest rates will rise at some point as the supply of money decreases, producing a recession and generating large amounts of unemployment. Congress won’t stand for it. They’ll demand re-inflation, rather than allowing the markets to clear in a recession.

The Fed does not want to be nationalized. Therefore, in the future they will navigate a fine line between inflation and deflation. This is why I think we will be seeing a boom-and-bust economy in America from now on, for the forseeable future at least. They will dance between inflation and deflation in order to prevent themselves from being nationalized, and also to prevent either extreme of hyperinflation or hyperdeflation. Either one of those scenarios would bring us the next true Great Depression: massive unemployment and lowering living standards.

So, Polleit foresees Congress and the Federal Reserve ultimately impovershing America and leading us into socialist dystopia. I disagree. This is because the Public has lost faith in politicians. They have faith in the government as it stands, but that has it’s limits. Case in point: No new major welfare schemes have been introduced within the past 30 years. I mean something on the scale of Social Security or Medicare. Obamacare is not a major welfare scheme: It is a Rube Goldberg machine designed to enforce universal coverage, but it is not an outright welfare scheme. It purposefully was not designed as a major welfare program because Congress knew the public would not accept it, because the public has lost faith in the government. The public only wants to maintain their goodies; they want to keep Social Security and Medicare. But they don’t want to risk rocking the boat with any new major welfare schemes. This is what has killed the ideological left in America. Their agenda is toast, for this reason.

I do not think we’re headed into socialist dystopia. I do believe that we still have some difficult economic times ahead, which will culminate in government default on Social Security and Medicare; but I think that enough faith has been lost in politicians and government that people will seek decentralization from Washington, and not totalitarian centralization from Washington. When the free goodies stop flowing and taxpayers find out they were bilked by politicians for years, much of the public will reject Washington. It will be a healthy and liberating development. It will be like awakening from a long nightmare.

 

 

 

 

 

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