Time to Start Honing the Message
For gold bugs, the past few years have been kind of peaceful, intellectually speaking. Because they understood the dynamic of fiat currency leading to excessive borrowing leading to financial crisis, they were neither confused about what was happening nor swayed by the gibberish that passed for expert opinion. Alan Greenspan could ramble and Larry Kudlow could rant, but who cared? In the end the laws of economics would prevail; housing would tank, inflation would surge, and gold would soar. Today's world looks pretty much the way Doug Casey or James Turk would have predicted, had you asked them a decade ago. So while the talking heads talked, the gold bugs calmly accumulated precious metals and shorted the financials, and won big. They didn't have to change anyone's mind or win any arguments. All they had to do was see clearly and invest accordingly.
But that's about to change, because the next stage of the process will be a real debate. When the fiat currency/welfare state/military industrial complex system finally implodes, Americans will have to figure out what kind of society to rebuild from the rubble. Barring a coup, the majority will decide, which means people who value the rule of law and sound money will have to have to argue effectively in favor of those ideals. And they'll face an uphill battle, because, as in the 1930s, the loudest voices will be those blaming capitalism and freedom, and calling for an enlightened state to save us from ourselves. Those arguments will strike a chord because, after decades of wealth-without-effort, most Americans lack a clear understanding of this stuff. Most won't immediately grasp concepts like Constitutional limits on government power, and many will buy the "bankers and rich people bad, government good" arguments of populists hoping to use the crisis to consolidate power in Washington.
So just when the gold bugs could be kicking back and enjoying the fruits of their prescience, they'll be pulled back into the stream of history. They'll have to debate, argue, and maybe fight to avoid living out their lives in a dictatorship.
In Saturday's Wall Street Journal, James Grant, editor of Grant's Interest Rate Observer, published a long piece that offers some ammunition for the good guys. Here are a few excerpts:
Why No Outrage?
The American people are famously slow to anger, but they are outdoing themselves in long suffering today. In the wake of the "greatest failure of ratings and risk management ever," to quote the considered judgment of the mortgage-research department of UBS, Wall Street wears a political bullseye. Yet the politicians take no pot shots.
Wall Street is off the political agenda in 2008 for reasons we may only guess about. Possibly, in this time of widespread public participation in the stock market, "Wall Street" is really "Main Street." Or maybe Wall Street, its old self, owns both major political parties and their candidates. Or, possibly, the $4.50 gasoline price has absorbed every available erg of populist anger, or -- yet another possibility -- today's financial failures are too complex to stick in everyman's craw.
I have another theory, and that is that the old populists actually won. This is their financial system. They had demanded paper money, federally insured bank deposits and a heavy governmental hand in the distribution of credit, and now they have them. The Populist Party might have lost the elections in the hard times of the 1890s. But it won the future.
They got their government-controlled money (the Federal Reserve opened for business in 1914), and their government-directed credit (Fannie Mae and the Federal Home Loan Banks were creatures of Great Depression No. 2; Freddie Mac came along in 1970). In 1971, they got their pure paper dollar. So today, the Fed can print all the dollars it deems expedient and the unwell federal mortgage giants, Fannie Mae and Freddie Mac, combine for $1.5 trillion in on-balance sheet mortgage assets and dominate the business of mortgage origination (in the fourth quarter of last year, private lenders garnered all of a 19% market share). Thus, the Wall Street of the Morgans and the Astors and the bloated bondholders is today an institution of the mixed economy.
In other words, it wasn't private property and freedom that brought down the American Empire, but their opposite: an expanding government armed with a printing press. Seen this way, the fix is simple: A return to Constitutional ideals of limited government and sound money. Convincing a voting majority of this will be a long, sometimes depressing process. But considering the alternative, there's not much choice. So start honing your message; you're going to need it.