The video “Why economic collapse never comes” was viewed more than 47,000 times before it was pulled with no explanation givern. In short, it said that economic collapse never comes because of the Establishment’s ability to create money out of thin air.
True, the Fed’s ability to create money can forestall economic declines, but the fact is that the Fed’s interventions in the market have caused many recessions, even the Great Recession of 2008 and the Great Depression of the 1930s. Why? Because the massive creation of money out of thin air distorts real prices, and when businesses cannot accurately forecast prices they make mistakes. (One of the biggest mistakes is taking on too much debt.)
The 1930s’ Great Depression was the result of massive money printing during the 1920s (which produced the Roaring 20s). The economic stagnation of the early 1970s resulted from Lyndon Johnson’s “Guns and Butter” policies during the Vietnam War. (Typically, when a country goes to war it cuts back on domestic spending, but LBJ didn’t see it that way.)
The dot-com bust of 2000 and the 2008 Great Recession were brought on by the low interest rate policies of Alan Greenspan that were continued by subsequent Fed chairs. And, the dislocation (I didn’t say “collapse”) that is coming will lie at the feet of Ben Bernanke’s Fed, which gave us Quantitative Easing, a euphemism for still more money creation.
(BTW, the spending for WWI resulted in a severe economic contraction 1920-1921, with unemployment rates that rivaled those of the Great Depression. However, there was different thinking in Washington nearly 100 years ago. The government cut spending, cut taxes and in less than two years the economy was growing again.)
One might say that “in less than two years” — with massive money creation — the economy was coming out of the Great Recession. But, that policy led to still more debt and covered up debts that would have been liquidated had not the Fed implemented Quantitative Easing. Further, recovery from the Great Recession via the massive money creation policy took years, not the two years’ recovery seen in 1920-1921 downturn.
When government cuts taxes and spending, those resources — both the dollars and the resources consumed by the government — can be reallocated in the private sector where real growth happens. Governments do not create wealth; it consumes wealth.
This fiscal year the deficit will be in the $1.2 trillion range and will climb higher if the economy slows. If interest rates continue to rise — as the Fed has promised — servicing debt (paying interest) will burden all the excessive debt taken on since 2008. Higher interest rates often are followed by economic declines.
Other signs of economic trouble ahead: auto sales are declining as are housing starts. With gold and silver sitting just above five-year lows, now seems to be a good time to buy them. Since President Nixon took the US off the gold exchange standard in 1971, higher gold and silver prices have accompanied economic declines.