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INDEPENDENT COUNTRY
The Decline and Fall of the United States of America
It began today, when the Fed told the world the dollar is worthless.

by James Leroy Wilson
March 22, 2006

Today we are entering a new world. The change may come suddenly, as a shock. Or perhaps we won't notice it for several months. It may come in one great financial crash, or it may eat at us steadily over a period of time. But today, March 23, 2006, is an important day in our history. If, as is the scenario in V for Vendetta, the USA breaks up in the near future and falls into civil war, historians will mark this day as the start of it all. For beginning today the Federal Reserve, the nation's central bank, will stop counting the world's supply of American dollars.
 
The dollar's value is judged in prices. There are two reasons prices go up. One is that the demand for something is greater than its supply. The other is that there are just too many dollars, with more and more pumped into the economy every day. If the Rocky Mountains were made of gold, we'd probably have gold pennies. And if our rivers flowed with oil, we wouldn't pay very much for a gallon of gas. That's because the supply would be much greater than the demand. The more there is of something, the less valuable it is. The same is true of the dollar. The more dollars there are, the less valuable they are.
 
Monetary inflation, the cheapening of the dollar, happens when there are more dollars in the economy than what people earn by producing goods and providing services. This doesn't seem to make any sense, yet it is possible because the government spends more money than it collects in taxes. The Federal Reserve "prints" more money (or creates it with a few keystrokes) to finance Congress's deficits. This extra cash flows into the economy as the government spends it, so it makes the dollars that were already there not quite as valuable as they had been. The supply of dollars becomes greater than the demand for them, and so the dollar's value falls in comparison to goods and services. Prices rise.
 
American society has adjusted to this. After the severe price hikes of the 1970's, when the government broke off the dollar's link to gold and the nation suffered oil shortages, we are now seemingly accustomed to both high deficit spending and moderate inflation. We rely on gains in production and wages to more than offset the effects of inflation. Inflation is supposedly "under control."
 
But you can't tell it by the prices of houses, of gasoline, of college tuition. You couldn't tell it by the huge increase in consumer debt the average American carries, which indicates that wages do not keep pace with inflation. The goods found at discount and dollar stores, produced by cheap foreign labor, hide the obvious. While the government's "Consumer Price Index" of February 2006 suggests a twelve-month inflation rate of 3.6%, the real measure of inflation is the number of dollars in the world. This measure, which the Federal Reserve calls M3, has risen 7.9% over the same time period. Meanwhile, the Gross Domestic Product – the nation's total value of goods and services -  grew just 3.2% in 2005 (xls).
 
The money supply is growing two and a half times faster than the economy. The nation is consuming far more than it is producing. This has been known for a long time, but now it's reaching drastic levels.
 
The Fed knows that M3 is proof to the world's bankers and investors that the American dollar supply is rapidly increasing, and that therefore its value is decreasing. The Fed is afraid that foreign banks, who hold a giant chunk of our national debt, will want to dump their dollars. The Fed is also afraid that oil-producing countries will likewise want to stop selling their stuff in dollars, and switch to the euro.
 
What has the Fed done to address this situation?
 
It has decided to cover it up. Beginning today, it will no longer publish M3. From now on, nobody will now how many more dollars the Fed will create out of thin air.
 
And this will make a bad situation much worse. The Fed's refusal to tell us how many dollars there are, is a sign that it is too afraid to admit how worthless the dollar really is. The world will abandon the dollar, with disastrous effects for Americans. Prices of goods and services will rise quickly and drastically, while wages will not even remotely keep pace. The number of bankruptcies will explode. Our financial system will collapse.
 
Combine this with military setbacks, the chaos on the Southern border, and Red State – Blue State animosity, we could very well witness the decline and fall of the United States within a few years' time.
 
Admittedly, this may happen anyway, but the Fed's M3 cover-up will only accelerate the process. So the best thing to do now is reverse course immediately. Not only should the Fed continue to publish M3, but Congress should get to the heart of the matter. The government's budget deficits are at the heart of this problem of inflation. It must cut government spending and balance the budget. Only then will America avoid collapse.


About the Author:
James Leroy Wilson blogs at Independent Country (http://independentcountry.blogspot.com).


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