Excellent point … excellent.

“Where’s John Galt when you need him?”

If Big Brother keeps going down the path its on, trust me, we’ll have many, many John Galts. I’m already hearing talk about secession on several conservative forums.

If you remember, the measure of the money in the economy isn’t just a static measure of the number of dollars but is the product of the number of dollars times how many times those dollars change hands (the velocity of money). With the current crisis, the velocity dropped since everyone was afraid to lend to anyone. This meant the money supply dropped quickly. To counteract, the Fed has been pouring money into the economy to make up for the lack of velocity. So far velocity has been dropping faster than the Fed is creating money which is giving us the recession. People are holding on to their money and prices are generally falling. Cash is being horded.

If the holders of the dollar start to lose confidence in the dollar (ie, the inflation rate goes way up, taxes rise a lot, etc.) then people will overnight go from hording cash to getting rid of it, since it will buy more today then next month. When this happens, the velocity of money soars and with it the money supply. But an expanding money supply is what causes inflation which makes people want to get rid of the dollar faster so…boom. If the Fed can’t drop the dollar supply as fast as the velocity is boosting it, we will get runaway inflation. When that happens, life and liberty as we know them is over. Runaway inflation brought Napoleon to the French and the Hitler to the Germans.

If the general public never looses confidence in the dollar or the Fed is able to shrink the dollar supply proportionally as velocity rises then we won’t get run away inflation. In this case, the situation will be like previous recessions. It could even be bad enough to become a depression, but it won’t destroy everything. But the lesson won’t be learned, the economy and currency won’t be fixed and we will just go back into another inflationary cycle.

A currency recall is possible. It’s an old trick used by governments to mask a hyperinflation; e.g., every $1 bill might be turned in for a newly created $22 bill. It’s the ultimate in smoke and mirrors.

I don’t think you can expect economic wisdom from the establishment press. How many of them, except John Stossel and a few others, are familiar with the sound economic reasoning of Ludwig von Mises, Murray Rothbard, F.A. Hayek and Henry Hazlitt? I doubt if any of them are carrying around your great book “Restoring the American Dream.”

When Ayn Rand’s masterpiece “Atlas Shrugged” was released she was reviled for her heartless, capitalistic philosophy. Some said her portrayal of villains was “cartoonish” and unrealistic. Isn’t it remarkable that the main players in our passion play of economic catastrophe are characters right out of “Atlas Shrugged?” Where’s John Galt when you need him?

I think that market forces are deflationary. However, our “beloved” political and financial leaders are attempting every measure possible to defeat deflation with the weapon of inflation. All this inflationary money on the marketplace guarantees that the nightmare of a hyperinflationary collapse is unleashed. Many citizens will feel that deflationary forces are squeezing them dry. Then the opposite will happen and they will drown in a deluge of inflationary money.

Do you see a currency recall in our future? If so, at what stage of the meltdown would it occur?

I graduated from the University of New Hampshire in 1992 with a BA Degree in Political Science and a minor in Economics. I ran for United States Senate from New Hampshire in 2002.

Article 1, Section 8 of the Constitution says Congress has the power

“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”

Congress should eliminate the Federal Reserve or veto many of its decisions. If the Federal Reserve continues to exist, two members of the House of Representatives and 2 United States Senators should sit on the board of the Federal Reserve. If 3 of these members of Congress wants a Federal Reserve decision to be vetoed it should be vetoed. If the majority of the United States House of Representatives wants a decision to be vetoed, it should be vetoed. If the majority of the United States Senate wants a decision to be vetoed, it should be vetoed.

Congress should consider backing our currency with gold, silver, and other commodities.

The least that should be done to grow the economy and create jobs is the indexing for inflation of capital gains, interest from savings accounts, and dividends. If the capital gains tax is not indexed for inflation, people may pay the capital gains tax when they have actually lost money because of inflation.

If the federal government is serious about growing the economy and creating jobs, it should stop taxing capital gains, interest from savings accounts, dividends, and estates. People will have an easier time saving for college tuitions and retirements. Middle class people and union members who have mutual funds would benefit from dividends and capital gains not being taxed. Businesses would have an easier time obtaining loans and investments.

If the federal government and state governments do not want unemployment to significantly increase, they should reduce the minimum wage over time and eventually eliminate it. If the minimum wage keeps increasing, the recession may get a lot worse. If the minimum wage is increased, many people will lose their jobs, many people will work fewer hours, many salaried workers will work more hours and harder for the same pay, and prices are likely to increase.

The federal government should sell a lot of the land it owns to raise capital, reduce the national debt, and do other things. Some of the money the federal government obtains from the sale of the lands should go to state governments.

The national debt was less than one trillion dollars on January 20, 1981. It took our country more than 180 years to get to that point. It is now more than 10 trillion dollars. High deficits may bring about very high inflation which is especially harmful to people on fixed incomes and people who have saved money.

Sincerely,

Ken Stremsky