In 1945 at the end of World War 2, after the manufacture of scores of
thousands of tanks, tens of thousands of airplanes, and thousands of
warships -- and at least as much spent on ammunition -- American national
debt had risen to 120% of annual national production (GDP). From the end of
the war onwards the mighty industrial machine and huge inflation turned as
one to making and selling a whole range of consumer goods that half of the
population had been unable to buy ever since the Wall Street Crash of 1929
and the subsequent Great Depression.
Due to this consumer take-up and continuing inflation (with higher tax
bands thus being reached) the American National Debt declined to less than
40% of GDP by 1990. By then most households possessed most consumer goods,
there were no new ones on the horizon, and replacement goods or marginal
improvements to them were then increasingly supplied by Japan, Korea and
China. The latter countries were able to institute the very latest
automated methods of the West right from the start of their production runs
-- as also, in their early rejuvenated years, using high-value components
still being made in the West.
But by then things were beginning to be sticky in America and Europe.
Unemployment was rising, particularly among the young, and the real wages
of the new service occupations that replaced the old industrial ones were
declining from year to year. From then onwards (President Reagan's time)
America's national debt rose to over 60% (with corresponding rises in those
of West European countries). It sank a little during President Clinton's
time but then started rising again during the two terms of George W. Bush
to over 80%. Today it's rising at an even faster rate and is already past
100%. President Obama shows no sign of being aware of the dangers of
further money-printing.
America's national debt could easily go above 120-140% of GDP in the next
12 months -- as indeed several European countries' already have (with
several others close behind). When that level of debt is reached then it
becomes impossible to pay back those debts out of normal taxation.
The public have been aware in a vague way of the rise of inflation and the
rise of national debts since 1945. What they haven't been aware of has been
a concerted campaign by governments and central banks to suppress the price
-- and thus the validity -- of gold. Above all governments didn't want gold
to resume its role as currency because that would prevent governments from
steadily (and often not so steadily!) devaluing the price of their own
currencies in order to reduce the real value of their debts.
Central banks suppressed the price of gold by selling large quantities of
it from time to time. To a considerable extent this policy has succeeded
since 1945. But at various times, whenever national currencies showed signs
of fragility or inflation, the price of gold would go up for a while until
central banks managed to quietly suppress it again. But since about 2000,
governments have been failing to hold the price of gold in check and it has
risen, on the whole, steadily, all the way up to $1200 an ounce today. This
is a fourfold increase over the course of a decade.
And it is still rising. Previously, the price of gold had an inverse
relationship with the price of national currencies, mainly the dollar and
the euro. As they devalued, the price of gold increased. But also, during
the strong deflationary period of the past two years, gold has continued to
rise. In fact, gold now has the confidence of so many investors (including
the governments of China, India, Russia and the oil-rich Middle East
countries) who are now doubting the future validity of Western national
currencies that it will continue to rise and become the de facto new world
currency. This is as it was before and during the greatest growth phase of
the industrial revolution (19th century) before governments started
printing paper money to pay for armies and major wars.
Unless something miraculous happens to somehow restore public faith in
national currencies and some miraculous formula is found to somehow
neutralise national debts then a day of reckoning is now not far off. To
English readers of this posting I would suggest that they take little
notice of the pseudo-cheerful bits of news that one reads in the press most
days of the week (after all, the media have an interest which they ought to
declare!) but to pay careful attention to the meaning behind the words of
those who really do know the real situation -- the Governor of the Bank of
England perhaps or the bosses of Tesco, Asda, Sainsbury, etc. They know
that the toughest times ever in the history of the industrial-consumer
revolution are now upon us. We are now very close to the end of the great
governmental experiment in printing paper money.
Keith
Keith Hudson, Saltford, England
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