Posted Jan 18, 2016 by Martin Armstrong
QUESTION: We see that the United States can borrow all it needs at minimal cost and we also see that we’re getting a big boost from falling energy/commodity prices, to levels we have not seen in some 15 years my “economic model” — which is not a computer model but is certainly scientific in nature — tells me that we will be humming along pretty nicely for quite a long while, minimum 5 years maybe much longer, given these two variables do you see anything on the horizon that will knock us off this “steady state” and quite favorable situation?
ANSWER: Your concept of the economy is very limited and is overly influenced by the concept of the quantity of money and the Austrian school of thought. This is one-dimensional. Taxes play a huge role and provides the source of DEFLATION. If I give you $100 and then tax you $90, just how much did I really give you? The middle class is shrinking and they claim the 1% is making too much. Is that really the problem? No. The problem is the 40% (government) is broke and consumes a steadily increasing proportion of everyone’s income. Government produces nothing and lives off of what everyone else produces. The more it grows, the lower the real economic growth.
You are only looking at the total aggregate. You assume simply increasing the quantity of money will produce inflation. That theory has been proven wrong continually throughout the course of history. You must look at the growth of government, because the larger it grows, the lower the economic growth. Look at the city of Detroit. When more than 50% of its taxes went to pensions, the city could no longer maintain the cost of government and collapsed as those who could be taxed migrated from the city.
This exact result manifested at the very beginning of the rebirth of government and taxes during the 15th century. Mainz was where the printing press was invented. The city went through a huge economic boom and the politicians borrowed against a future they assumed would never end. The more they raised taxes to pay for expenses, the more people left. They began issuing new debt to simply pay off the old debt as we do today. When they could not sell new debt, they defaulted. They were then invaded and the city was sacked and burned to the grown.
This outcome applies to all levels of government. Your “model” assumes that merely increasing the quantity of money defeats this reality. It does not and has NEVER prevented the collapse of empires, nations, or city-states. Undermine the CONFIDENCE of the people and you destroy your own economy. This is what we are in today. The hunt for money has begun and with it our freedom is vanishing before our eyes. The end is caused by the mismanagement and greed of government — not the 1%. They too ultimately become the target of government, just as Philip IV of France imprisoned all the Italian bankers, seized the Papacy and move it to Avignon, and then installed a French pope to seize the Knights Templar and confiscate all their wealth. It is always the same story and plot — just the names change with time.
In his “Decline and Fall of the Roman Empire”, Edward Gibbon wrote, “Suspicious princes often promote the last of mankind, from a vain persuasion, that those who have no dependence, except on their favor, will have no attachment, except to the person of their benefactor.”
Edward Gibbon wrote of Commodus (177-192AD):
“Each distinction of every kind soon became criminal. The possession of wealth stimulated the diligence of the informers; rigid virtue implied a tacit censure of the irregularities of Commodus; important services implied a dangerous superiority of merit; and the friendship of the father always insured the aversion of the son. Suspicion was equivalent to proof; trial to condemnation. The execution of a considerable senator was attended with the death of all who might lament or revenge his fate; and when Commodus had once tasted human blood, he became incapable of pity or remorse.”
When government turns against its people, the economy begins to shrink. Commodus was the son of Marcus Aurelius who marked the peak in the Roman empire. From that point on, Rome began its fall. Government began to hunt money and assets. The population of Rome itself peaked and people began to migrate from the city to the suburbs. You must also look at this balance between public and private. Therein lies the real key to the rise and fall of civilization — not the quantity of money.