Big Government and Inflation.
The biggest problem facing the U.S. is a really big government. It’s a monster that needs continuous feeding. Before Roosevelt’s New Deal, the federal government was 3 percent of the economy. Today it’s over 26 percent. And when you add in state and local governments, plus the cost of regulatory compliance, plus the cost of all of the business that provides the goods and services that support all of the government agencies, it’s more than 50 percent of the U.S. economy.
I believe the biggest thing to worry about in the coming storm is the government coming to the rescue. And with the government so big, and so pervasive, and with everyone expecting the government to provide a safety net for every possible contingency….it will.
As noted, economist Milton Friedman puts it, “Government has three different functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens against crimes against themselves or their property. When government….in pursuit of good intentions…. tries to rearrange the economy, legislate morality, or help special interests, the costs come in inefficiency, lack of innovation, and loss of freedom. Government should be a referee and not an active player.
Many economists, financial advisors, and money managers feel that all the financial disequilibria created by the dollar standard, U.S. budget and balance of trade deficits, and currency creation by the central banks are building up and storing energy that will one day result in an enormous wealth transfer. Will the transfer come gradually, or will it spring upon us suddenly? Some believe it will be sudden, triggered by an event, rather than a slow meltdown. Whatever form this transfer takes, those who had the foresight to move their wealth to the safe harbors of gold, silver and precious metals will reap the benefits.
There is, however, disagreement among economists as to whether the result will be deflation, inflation, stagflation or hyperinflation.
Deflation is a contraction of the currency supply, which causes the currency to gain value and prices to fall. Deflation can happen rapidly, as in the case of the Great Depression, or slowly, as in the case of Japan in the 1990’s.
Inflation is a mild increase in the currency supply, which causes the currency to lose value slowly and prices to rise.
Stagflation is economic stagnation, where the economy might be in recession and just can’t seem to get going, combined with high unemployment and high price inflation as in the 1970’s.
Hyperinflation is inflation on steroids.
From the book: “Guide to Investing in Gold and Silver” by Michael Maloney
