Now What? New Deal? New Era?
By Craig R. Smith
CEO, Swiss America
Nov 5, 2008
During the Clinton years the phrase "Symbolism over Substance" was made popular by Rush Limbaugh. Rush did the world a service by illustrating that the political (and economic) world are driven more by image than by content.
World leaders quickly hailed the triumph of Barack Obama as the start of a "new era" ... a "new deal". "I have never been more hopeful than I am tonight that we will get there," Obama said in Chicago, before an estimated crowd of up to 240,000 people. Obama told the roaring crowd, "This is your victory."
Millions of Americans chose a new president for the next chapter of the greatest experiment in world history based more on a symbolic image rather that a substantive track record. As they say, we will now get the government we deserve.
How did this happen?
Presidential candidate John McCain was hit with three big strikes which rendered the game over; 1) U.S./global financial and housing meltdown, 2) Widespread Bush administration disgust, and 3) Extreme mainstream media bias toward Obama. Add it all up and you have a perfect recipe for sweeping "change" in the political landscape.
Obama's victory is not the first time in our history America trusted a Democrat to deliver the nation from the depths of economic despair. In 1933, FDR was elected to lead us through a very trying time in America, and lead he did – right down the path of the New Deal with massive government programs, increases in the monetary base and welfare for all who were in need.
And while many in the Democratic Party lionize Roosevelt for his efforts, he forever changed the future of America. The concept of big government and the "chicken in every pot" mentality replaced a sense of personal responsibility.
While FDR was governor of New York, he prided himself on being a progressive who brought tax relief to farmers and promoted inexpensive electric power. Less government and less intrusion seemed best for his state.
However, in 1929, the Great Depression stunned America. Gov. Roosevelt changed his tune quite radically as dealing with the consequences of the Depression moved him toward advocating government intervention. He enacted state programs that put 10,000 men to work building roads, planting trees and constructing buildings. Much of his programs were models for what would become the Civilian Conservation Corps, or CCC, heralded as one of the most successful programs of the New Deal.
In 1932 the American people were ripe with anger toward President Herbert Hoover. Some argued Hoover would have had the worst approval rates of any president if there had been approval ratings back then. The country was resolute in its desire for change.
The governor from New York won the election by a wide margin. With a strong mandate, FDR moved quickly in his first 100 days to pass landmark legislation giving the federal government an active role in addressing the issues the nation faced. He passed the Emergency Banking Relief Act. He created the Federal Emergency Relief Administration, the National Recovery Administration, the Agricultural Adjustment Administration and the Tennessee Valley Authority. Later he established the CCC, Works Progress Administration and ultimately, by 1935, the Social Security Act – which by far was the most enduring piece of the New Deal.
FDR closed the banks, recalled gold and prohibited the private ownership of gold or the sales thereof. He revalued gold from $20.67 per ounce to $35 per ounce, allowing the Treasury to create 75 percent more money to inject into the system and stimulate the economy. The Federal Reserve stood ready with the magic of fractional banking to create billions of dollars, and we were off to the races.
The modern American monetary system is the result of an incestuous relationship between the federal government and the private banking cartel, deceptively called The Federal Reserve System (a.k.a. "The Fed").
FDR created bigger government equipped with unlimited money, and yet it wasn't until the nation entered a war that the economy took off. But by the '50s and '60s, we saw rates of inflation that prompted Nixon to close the gold window in 1971. There was not enough gold to cover the dollars created during the leadership of FDR.
And while many believe FDR was a great president, few point out the welfare state created at all levels during his tenure. The belief the government was responsible for every person's food, clothing, shelter and well being was clearly a byproduct of the FDR philosophy.
Alan Greenspan in his white paper, "Gold and Economic Freedom," pointed out the welfare statists' tirade against the gold standard. The gold standard stood in the way of growing the welfare state because honest money could not be created out of thin air to fulfill the Democrats' grand vision.
Greenspan candidly admitted, "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves."
Obama will no doubt return to the same Democratic playbook of massive monetary inflation to achieve his goals: bigger government, higher taxes, more spending and promising every citizen everything from health care to college education – welfare for everybody, including Wall Street.
But where will all this money come from?
The printing press, of course. Unlike FDR, Obama will not be required to keep gold on deposit to create the money, but create he will. And the consequence will be the same: inflation. America saw in the years following what appeared to be a great economic recovery. Democrats believe that bigger government is better government. Throwing money at every problem is the Democratic prescription.
But before you think it would have been much different with McCain, just take a look at the last two decades of wasteful spending and larger government. We have now grown the national debt to $11 trillion, and there is no end in sight as we continue to throw more and more dollars at the problem. McCain has been opposed to wasteful government spending, but he is a lone voice among a pack of pork-loving wolves, and it takes more than one man to stop the feeding.
Yet many people believe a single man in the Oval Office can solve problems we face without the law of unintended consequence kicking in over time. We as a people must deal with the reality that serious fundamental change must occur if we truly want to get the country back on the sound fiscal path to prosperity. To continue down the path of failed policies from both sides of the aisle will only get us more of the same (the definition of insanity).
We the people must demand a reduction in the size of government and its spending habits. We must reduce business taxes, which are the second highest in the world. It is time to tell Washington it gets enough of our money at the current tax rate and to freeze or reduce personal taxes for everyone who pays.
The more the people look to government for the solution, the more the government will grow. Until Americans realize government is not the solution but the problem, we will go through these horrific election cycles – elections in which hundreds of millions are spent trying to convince us that one person and his or her government system can create a utopia.
Early on in this election, comparisons were drawn between JFK and Barack Obama. Just as Kennedy was America's savior and sweetheart back then, so would Barack be today. Foolish notion! Kennedy's famous conviction, "Ask not what your country can do for you, but what can do for your country," is something Obama would never support. Obama suggest Americans ask, "What has my country done for me lately?" and to demand more if the answer seems lacking.
This sense of entitlement is crippling us as a nation. Since when is everything from food to education a birthright if you are born in America? It has been ever since the great FDR started the New Deal. Today a new New Deal is on the table – courtesy of the Democratic Party that now nearly controls the Senate, the House of Representatives and the Oval Office. It is a rubber stamp of epic proportions ready to pass a liberal's dream come true. FDR must be green with envy.
To quote Nancy Reagan, it is time to "Just say no." Sadly America failed to collectively say, "Get out of my wallet, off my back and away from my children – and let me live as a free individual." And now in 2009 we all face uncharted political and economic waters with a charismatic, but untested, new president. God help us.
Economic hope vs. hype
Today investors are struggling to regain confidence in U.S. stocks, bonds and commodities -- all pummeled in 2008. As U.S. stock indexes search for a bottom, more pundits are expressing hope that the worst is over. I say we must define our terms carefully. Faith and hope are often confused - but they are both based on substance, not symbolism.
"Faith is the substance of things hoped for" - we are told in Scripture - not the "symbol" of things hoped for! To create a lasting hope requires much more than hype. The only way to protect against hype, political and economic, is to do the opposite of what is being hyped.
Today millions of investors are running to the ultimate form of symbolism, the U.S. dollar, thinking that cash will remain the "king" of currencies. Don't count on it. Sadly, today's deflated dollar retains a mere three cents of it's original 20th century buying power.
Sound money requires maintaining a reliable store of value. Government bailouts will create inflation amid a severe recession. Asset deflation usually follows asset inflation in the historical boom-bust credit cycle.
Since political symbolism triumphed over substance on election day, I recommend investors quickly move 10-25% of their holdings onto a "personal gold standard" as protection from the prospect of a weaker dollar, rising taxes and higher inflation in the U.S.
Read my new "Surviving & Thriving The Coming Financial Storm" Special Report, it will help you navigate the most treacherous financial storm to hit the U.S. and the world since the Great Depression.
P.S. In my 2001 book, "Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush", I devoted a whole chapter to explaining why, in the long run, substance will always triumph over symbolism!