Why The USA Must Default And Then Re-Adopt Gold & Silver

Is there anyone who honestly believes that the USA has the ability to repay its foreign creditors with anything but grossly devalued paper dollars? When the Federal Government's debt limit is anything but a limit and when all their projections have proven to be wildly off the mark to date, there is little doubt that its chances of repayment are worse than Robert Mugabe's chances of winning the Nobel Prize for Economics. Now that says something.

The current malaise is too deep rooted and too multi-faceted for any one administration to tackle. Apart from the problems surrounding sub-prime, rising unemployment, unfunded Social Security and a health system that is a bottomless pit, it is also faced with mounting demographic issues and a younger generation that has close to first place on the obesity charts. The rest of the problems are too numerous to mention but they have been raised countless times by other very competent contributors.

There is little doubt that the downhill journey of the last decade has been aided and abetted by the Chinese Government which not only manipulated the value of its currency but also lent its foreign exchange surpluses back to the USA. These surpluses were then processed (a.k.a. siphoning) by Wall Street and then run through the credit creation machine owned by bankers. The people of the USA ended up being bloated by real debt and hallucinogenic asset values.

Let's be honest. The relationship has been a mutually parasitic one. The US gave away its manufacturing pride, opened its doors to China through Walmart and allowed plenty of illegal immigrants in to do the remaining low paid service jobs and foreign call centres and foreign processors to wrap up the rest. It sold itself in return for trinkets. Does this remind you of how New York City was bought from the Canarsees Indians for $65 by Peter Minuet? China on the other hand builds up reserves, guts the enemy's productive capacity, starts to buy foreign assets and raises its living standards by leaps and bounds.

It wasn't that China just manipulated its currency. It is also guilty of having "ripped off" US know how through scant regard for patents and intellectual property. How much did the US lose in royalties if not actual production? Mind you, the working conditions of the Chinese continue to be largely deplorable by US standards.

On top of this, China's currency controls as well as tight control over foreign investment have made a farce of free trade. What has been happening between the US and China is akin to a soccer game where the US goal mouth is twice as wide and twice as high. The USA is not worried about losing the games because China lets it keep the balls after each goal without noticing that it has lost the soccer field, the grandstand and finally the ticket sales.

The USA must realise that while it has military superiority it must impose a Gordion knot solution to solve the problem. It must basically "default" on its foreign obligations. This must be done by issuing a new US dollar that is backed by greatly re-valued gold and silver. It must then negotiate a deep discount with foreign holders of US dollars for the return of these worthless pieces of paper in return for a much reduced number of gold and silver backed dollars. The Government is forcing lenders to do this with hapless borrowers in relation to housing loans so why not do the same on an international level?

From that point on, the USA must not allow imports to exceed exports unless it is happy to part with its gold and silver. Since oil is a big issue, it must drill wherever possible (even Alaska) to cut down on its dependence as well as reap the wind and sun with new technologies. Furthermore, giving cash for clunkers is as short sighted as giving drug addicts another hit to stop them from going ballistic.

I realise that the complexity and entanglement of world finances will make the adoption of such a proposition quite difficult, but it is better to give it a go before the system collapses on all of us. In other words, it is better to have a staged demolition rather than an unexpected earthquake.

The US is blessed by some of the richest land, best brains and greatest technologies ever produced. It must however give up the printing press, it must stop holding a gun to every foreign country's head and it must discipline its own people to live within their means and in a manner that does not extinguish the future for those that have not yet been born.

My late mother would often remind me that "it has been my life goal to leave children behind that are better than me. This should also be your goal in life when you have children. If I fail and you fail, then man will become an animal and civilization will return to a cave." This should be the goal of every family if society is to survive and thrive. I only wish governments would at least adopt that part of the Hippocratic oath that promises to do no harm. Instead each administration has added to the nation's woes. Instead the USA has regressed from gold and silver and a constitution that is clear, to printed pieces of paper and court judgments that have stretched the truth beyond Pinocchio's own limits.

My mother would often remind me that holding a knife to a debtor's throat was not only barbaric but also potentially dangerous. She admired the ancient law giver Solon who wrote- off debts and released the Ancient Athenians from debt induced slavery.

Debt is no longer a tool in the hands of the borrower. It has simply become a weapon in the hands of the lender. Hold swathes of debt must be written off to let home-owners and nations to breathe once again and to address the problem of an ever increasing proportion of national income being swallowed up by a miniscule proportion of the population. The super-rich must take the lead in rejuvenating the system. They can no longer lock themselves up in castles with moats. The Lords of the Manor must realise that looking after the serfs may cost a little more but will also make them far more productive and self-reliant without requiring a moat for protection. Their share of the pie will decrease but the size of their piece will get larger.

Many may disagree with my view but it is apparent that both the bottom and top sections of the community have sought to rip out of the system whatever they could and however they could. This has left the middle class carrying the yoke and paying the price. Unless the system addresses these imbalances no measure of stimulus spending will save the capitalist system from implosion in the longer term and morass in the shorter term.

President Obama promised to tell his people the truth. He can begin by telling them that they must do a lot more with a lot less and that Government can no longer be the hand that rocks the cradle. Everything must be "mark-to-market" not just bank assets, otherwise lies will be perpetuated and other shaky structures will be built.

As for the Chinese, I believe they will benefit from a default. By curbing US consumption of the world's resources it will be able to buy cheaper and turn its incredibly hard working people towards fulfilling their own needs rather than filling the constantly hanging Christmas socks of the US consumer. The sooner nations square off their accounts, the keener they will become to trade on a dollar for dollar basis. Everyone is a winner.

At the basis of all this must be the realization that monetary wealth cannot be stored in the form of printed paper. Only gold and silver can do this. If the store of value characteristic is not restored to money then we will continue to stagger from one disaster to another until war and misery, instead of common sense, are required to wipe out the excesses.