Skip O'Neill – Liberty for All

Ron Paul for A New Direction

The U.S. has already gone bankrupt twice in the last 100 years.

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Since the Federal Reserve was put into place in 1913 and income tax was introduced.  Less than two decades later and the US Government was already bankrupt.  The only way it could salvage itself in 1933 was to confiscate much of the real wealth(gold coins and bullion) of its citizenry and devalue the dollar.  This was bankruptcy #1.

After World War II, two facts led to it’s predominance in the global economy. The US was the only modern, industrial economy to survive intact and the establishment of the Bretton woods system that positioned the USD as the world reserve currency. This position was abused by the cynical political class and their wealth was squandered throughout the 1960s with the unnecessary war in Vietnam and the institution of the “Great Society” welfare state programs. By 1971, the US Government was again bankrupt.

Bankruptcy #2, on August 15, 1971, Richard Nixon reneged on the promise to exchange the US dollar for gold. The world went into shock. For a period of time the US dollar barely traded on international markets.  In Germany, where they have experience with hyperinflation, US dollars were not accepted by any currency exchange shop for a number of weeks as people around the world threw up their arms in anger.  But… what could they do?  Nothing.  And what were the viable alternatives at the time?  There were none… so, after a few weeks, people just continued to use the now pure fiat dollars.

As the years passed and as the US Government and Federal Reserve, unrestrained by an admittedly weak gold exchange standard of the Bretton Woods system, began to inflate the dollar dramatically, the world was sent into an inflationary crisis by 1979.  People from Toronto to New York to Paris were calling in sick for work and standing in lines that wound down the block to buy gold in exchange for their fiat currencies.

It was less than ten years on a pure fiat currency system and the US economy was on the verge of collapse.  But, and this is a big but, the total amount of debt that had been racked up western governments had not reached the point where they could not be paid for even with interest rates skyrocketing well over 10% to squelch the inflation.  And that is what happened.  Paul Volcker allowed interest rates to seek their natural level and it hit as high as 18% before the inflation was muted.  But the US Government only had $900 billion in debt versus a GDP of $2.7 trillion.  So, debt to GDP was only 33%.  Today we are hovering around 100%.  Watch out below.

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Written by opinionoregon

May 30, 2012 at 3:24 am

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