Can We Learn from History?

Spanish- born philosopher and essayist George Santayana (1865-1952), in his 1905 volume, Reason in Common Sense, is especially remembered for these words: “Those who cannot remember the past, are condemned to repeat it.”  This is often phrased more pointedly: “Those who cannot learn from history are doomed to repeat it.”

Following World War I (1914-1918), the victorious Allies saddled defeated Germany with an unreasonable war reparations debt that considerably hindered German economic prosperity. This was just at the time when much of Europe and America were beginning to experience the prosperity of the “roaring twenties.” In addition, large government social welfare programs were becoming politically popular. But the German government could not pay its war debts and launch popular social welfare programs without raising taxes that would hinder economic recovery.

The political solution of the German Weimar Republic was fiat money. They first got rid of the gold standard for the German Mark and then simply printed and circulated enough money through the banking system to pay for reparations and social programs without damaging economic prosperity by raising taxes. Governments can also create fiat money by deficit spending or by pumping credit into the banking system without regard to real market rates. When governments create loose credit and spend more money than they have, it causes inflation and devalues the currency.

Government deficit spending and loose credit may initially create the appearance of prosperity, but the reality of inflation and devalued currency eventually show up and ravage public spending power and savings.

There are many frightening parallels between Germany in 1921 and the United States today. In 1921, the newly elected democratic socialists of the Weimar Republic had made boundless promises of social benefits, expanded education systems, higher wages, reduced hours, and more vacation. Rather than paying for the new social benefits with economy debilitating taxes, the Weimar government began to run larger and larger deficits. Reparations payments could also be made less painful with less valuable Marks.  Inflation more than doubled in the first half of 1922 and then began its breathtaking acceleration to the point where the new Trillion Mark note was no more valuable than its use as wallpaper.

During the German hyperinflation of 1922-23, people’s life savings, representing years and sometimes lifetimes of hard work and thrift, became almost worthless. The proceeds of life insurance claims and savings could not buy a loaf of bread.  It took thousands of German Marks to buy a cup of coffee and every day that passed a few thousand more. Eventually, it took millions of Marks to buy a single egg. Real estate prices plunged when the government froze rental rates. Real estate mortgages, however, could be paid off with cash that would not buy a theater ticket.  Later, when rental price controls were lifted, real estate returned to normal, but millions had lost valuable properties in panic selling.  People on fixed pensions became destitute. The real income of professionals and skilled craftsmen declined to poverty levels.  The values of hard work and decency that earned these savings often perished as well. The hyperinflation came to an end, when the German government issued new Marks backed by industrial properties. The old Marks were virtually worthless.

In the last two years, President Obama and his Democratic Congress have poured trillions of dollars into stimulus programs that have not worked. A little study of history and common sense economic analysis would have easily predicted their failure. But Obama surrounds himself with  “court prophets’ who tell him what he wants to hear. This happy blend of Keynes and Marx should be called Team Coyote, after Road Runner Cartoon character Wile E. Coyote, who constantly redoubles his efforts on roadrunner catching methods that are proven failures. But for the American people, it is no laughing matter.

Team Obama and his Congress are running up unprecedented budget deficits exceeding a trillion new dollars of debt every year. The resulting inflation will be devastating unless he is stopped. It is already clearly on the radar screen.

Recently, the U.S. Federal Reserve has begun to loosen credit to acknowledged inflationary levels in a desperate attempt to stimulate the economy. They are now deliberately inflating the currency to get the economy going, but the economy will not get going so easily, because businesses fear the policy and economic uncertainties created by Obama socialism. Some of the stock market’s recent upward move reflects easy credit; and some reflects higher commodity prices, but most may represent investor hopes that Obama’s Democratic Congress may soon be out of power. However, Fed inspired inflation is highly reminiscent of the 1922-3 German Weimar Republic.

There has been a sharp rise in commodity prices in the last few months. Gold, silver, copper, and mineral mining stocks have risen steadily. Agricultural commodities are following suit. You will soon see the results at the grocery store and at the gas pump.

The value of U.S. currency has also been falling in relation to China, Japan, and Europe. As foreign governments and business lose confidence in the dollar, an official devaluation may be inevitable. Formerly cheap foreign made goods sold at American Wal-Marts could soon have shocking price tags.

During the German Hyperinflation people bought almost anything rather than holding increasingly worthless Marks. As we have shown, real estate values eventually returned, although government rent controls ruined millions of businesses and homeowners. Early investors in gold, silver, and other precious metals did well. Those who held diversified stock portfolios of large, solid companies eventually did well, although there were so many panics and wild gyrations of the market, that huge sudden losses were common. Many small and moderate-sized companies were wiped out.

The best way to survive in America today is political revolution. We must vote the Democratic Congress out of power now or see our country ruined. We must take the revolution to every state legislature and county government, and in 2012, we must finish the job. Finishing the job will also mean replacing wannabe liberal Republicans with principled conservatives.

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Mike Scruggs is a decorated Air Force combat veteran of the Vietnam War and the author of a recently published book: Lessons from the Vietnam War: Truths the Media Never Told You.  The book, a unique combination of personal experiences and a military and political overview of the war, can be obtained by calling The Times Examiner at (864) 268-0576.

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