The development of economic crisis:
By 1965, I realized that government economic policy, guided by Keynesian economists, was driving the nation towards disaster. My book, presciently entitled "Dollar Devaluation," was published in 1967, explaining a few of the many things that are wrong with both the applicable Keynesian theory and the policies based on that theory, and predicting the logical outcome.
Thus began my efforts at economic forecasting, extending over 35 years, with a dozen year hiatus between 1986 and 1998.
For the dozen turbulent years from the beginning of 1967 through November,1978, my published economic forecasts achieved an astounding record of 100 percent accuracy. This was a time when many economic "authorities" were achieving an equally astounding record of 100 percent futility. This record is set forth in "Lets Look at the Record (I)."
My subsequent record was marred on a couple of occasions by a minor error in timing and a short period of excessive pessimism, and on one occasion by a weak spot in my theoretical understanding that led to my one serious economic forecasting error. However, my forecasting record still remained very accurate, especially when compared with the consensus forecasts, which remained very unreliable. This period is set forth in "Lets Look at the Record (II)." See Futurecasting_record_2.
Equally accurate were my analyses and forecasts of Russian economic prospects and the oil crisis, set forth in "Lets Look at the Record (III)." See Futurecasting_record_3.
Dollar Devaluation:
Taking note that conservative warnings had, for three decades, failed to be fulfilled, I stated (pp. 9 - 11):
"The liberals counter that this is a 'new economic era' where government, by modern 'scientific' policies, can forever banish bad recessions and maintain a state of steady economic growth. Applied 'scientifically,' deficit spending will not result in substantial inflation so long as there is no wage-price push caused by a shortage of workers in an overheated economy. True, the '1939 dollar' has lost considerably more than half its purchasing power. But most of this can be related to WW II, the Korean War, and the current Viet Nam conflict. Surely modern economic theory cannot be blamed for labor shortages and the resulting inflation caused by the economic drive to meet war needs. Of the remaining 1 to 2 percent inflation per year, this is a small price to pay for the elimination of the business cycle and unemployment, and the construction of the Great Society. To liberal circles, the warnings of economic disaster, after thirty years of nonfulfillment, are now nothing more than a big joke.
. . .
"Keynesian economic theory and its current derivatives . . . are invalid. They are nothing more than sophisticated excuses for deficit spending. The points of weakness are quite numerous. . . . The economic policy of the United States government is based on this invalid and unworkable body of thought. It should surprise no one that these policies are leading straight to severe financial and economic dislocation."And it is coming. Not tomorrow, and probably not even during this administration of President Johnson. Twelve billion dollars worth of gold, in addition to assorted hard credits of a nonphysical nature, still provide a fairly impressive reserve. But the dollar will face a significant cut in its purchasing power in the not too distant future. Occurring sometime within the next ten years, the loss will probably amount to somewhere between 60 to 80 percent of the dollar's present purchasing power. . . . Politicians will play the 'confidence game' to the hilt, with gushing streams of sunny predictions and statements of unswerving purpose and unquestionable capability. They will all be proven wrong." (BINGO)
Later, I explained (p. 17):
"When huge reserves of gold and hard currencies permit a nation to run extensive government and private deficits for two or three decades, eventual evaporation of these reserves, expended in support of the paper currency, will present unpleasant alternatives. To continue deficit spending means real inflation; to stop deficit spending means deep depression. Historically, frantic political leaders try each in turn. Debts have been 'paid' by inflations anywhere from 30 to 100 percent. Then the induced recession of 'austerity' may produce financial surpluses and restore credit."
Thus, I predicted (p. 53):
"Precise timing is impossible. Even estimates must vary according to future events. At current rates, price inflation will strike within ten years and destroy approximately 80 per cent of the purchasing power of today's dollar within fifteen to twenty years. A Korean-type war may reduce to as little as four to six years the period during which our gold and hard currency will remain capable of absorbing these inflationary pressures." (BINGO TO THE MAX!)
I concluded by advising investment in the standard inflation hedges, and the postponement of retirement plans.
The Miami Review:
By 1971, I realized that the crisis was near, and that developments were moving too fast to be covered by another book. So, I arranged to begin writing a regular financial column for a string of business newspapers headed by the Miami Review. For the next 13 years, readers of my popular column had a road map through the economic twists and turns of those turbulent times.
The headlines for these articles were written by the editor; they were the only changes he ever made. Where I do not have copies of the newspaper articles, I cite the dates of my carbons. The articles generally appeared within two or three weeks of the dates of my carbons.
(2/11/72, p. 15)
"The $3 increase currently envisioned in the price of gold is no more than 1/10th, and possibly as little as 1/20th, of the increase that will occur before this decade is over."
While I correctly predicted the extent of price inflation for the 1970s, not even I could envision at that early date the stupidity of the Carter administration economic policies and the monetary panic it would cause.
"With the dollar once again fixed in relation to gold, albeit tenuously, monetary expansion by the Federal Reserve Bank can be resumed without any immediate impact on prices. The election year boom is presently being fueled."
(3/2/72, pp. 1 and 16)
"The first tremors of the next monetary crisis have already been felt. Within the next two years, perhaps even before the end of 1972, we will have another, and probably much bigger, dollar devaluation. It may already be past the optimum time for selling long term bonds and buying shares in gold mining companies.
"Businessmen who have to arrange long term financing, or who will have to refinance existing debts within the next few years, had better take care of that chore right now. Those who have to obtain or refinance mortgages should do so now. Delay could be costly. We are now seeing the lowest interest rates of this cycle." (BINGO TO THE MAX!)
I always took good care of my readers' financial health.
(3/27/72, p. 1 and 16)
"[T]he time must come when foreign central banks will refuse to take additional dollars at present values. Nations forced to sell gold to settle trade accounts will be under great pressure to sell it on the open market at $48 per ounce, rather than at the $38 price arbitrarily fixed for exchanges between banks.
"As the open market price goes higher, the pressure will increase, bringing a breakdown in the 1971 monetary agreements and a further, and more substantial devaluation of the dollar."
". . . [O]nly a rise in the price of gold to $80 per ounce or more could assure the world of sufficient reserve assets to finance international trade and prevent continued monetary and trade dislocations."
(4/24/72, pp. 1 and 16)
"Those in the know realize that the real action is in the bond markets.
. . .
"The low interest rates of the first quarter of this year indicate that, barring an international money crisis, 1972 will be a good year for business and a good year for an incumbent President to seek reelection.
. . .
"As high grade industrial bonds crawl up over the eight percent mark, and ultimately edge back over the nine percent mark, the basis for the next credit crunch, economic decline and stock market setback, will be formed." (BINGO)
(From my carbon dated 8/2/72)
"Inflation at a time of substantial unemployment was viewed as a rarity by the Modern Economic Theorists of the last two decades whose teachings provide the rationale for official United States economic policy. Concurrent occurrence of the two phenomena were viewed as possible only in such special situations as that that existed in Germany in the 1920s. We were assured that, if we used deficit spending to achieve full employment, there could not be any substantial inflation unless the deficit spending was continued after full employment had been achieved. The fallacy of these teachings is now painfully apparent.
. . .
"Election year pump priming has already set in motion inflationary forces that will render the Government's efforts at price control either ludicrous or destructive or both. Regardless of election year rhetoric, neither political party or presidential candidate will be able to avoid severe monetary dislocations, higher interest rates, higher rates of inflation and unemployment. (BINGO) The next administration will see basic interest rates, unemployment and inflation all above 10 percent. For short periods of time, it is possible for all these to be occurring at the same time."
Correct, but unemployment didn't quite reach 10 percent while inflation and prime interest rates were in double digits.
(8/10/72, pp.1 and 12)
"The extent of our balance of payments deficit and the massive amounts of dollars that have already accumulated abroad make a substantial devaluation of the dollar inevitable and imminent.
. . .
"No doubt, the value of gold will not climb straight up. But, if the United States is unable to sustain the rigors and unemployment of a harsh austerity program, gold prices substantially in excess of $100 per ounce will occur before the 1976 election rolls around." (BINGO)
(From my carbon dated 5/14/73)
"Securities industry leaders such as James J. Needham, Chairman of the Board of the New York Stock Exchange, and James M. Roche, retired Chairman of General Motors Corp. currently serving on the Board of the New York Stock Exchange, speak of the current market decline in terms of amazement. They point out the many 'bargains' currently available at low price-earnings ratios, and belabor market analysts and the investing public for abandoning large segments of the market. With half its listings selling at or below ten times earnings, Big Board stocks are currently being appraised by the market at their lowest relative value in twenty years.
. . .
"Of course, the Federal Reserve Bank could crank up the printing presses again and, with a flood of new money, drive short-term interest rates back down. However, with both Germany and Japan raising interest rates to fight inflation, and the United States no longer able to support its dollar to any substantial degree by the expenditure of gold and hard currency reserves, the adverse effect on our balance of payments and on the value of our currency would be dramatic and almost immediate."So the securities industry, along with the rest of us, had better tighten its belt and put its financial house in order. Mr. Needham and Mr. Roche to the contrary notwithstanding, those rising interest rates indicate that things are going to get considerably worse before they get any better. (BINGO)
(6/18/73, pp. 1 and 4)
"The financial weakness of the United States means that the Fed no longer has a choice between acceleration or deceleration of an essentially healthy economy. Its only choice now is between rapid price inflation or severe recession, with the effort to balance between the two resulting, when 'successful,' in doses of both.
(From my carbon dated 7/25/73)
"The outcry against high interest rates has already begun. Unfortunately, the only remedy offered by the politicians and academic economists is more of the same policies that got us into this mess.
"Just as soon as the economy begins to slow down, the government will be called upon to sustain additional budget deficits financed by additional floods of new money. With the present lack of confidence in the dollar, however, the short run benefits of these policies will be very short indeed, lasting no more than a few months, before a new monetary crisis develops, ushering in accelerated inflation and even higher interest rates."
(8/3/73, pp. 1 and 4)
"As high grade interest rates move towards the 9 percent level, and others move even higher, a mammoth worldwide tug-of-war for the speculator's money is beginning to take shape.
"The attractiveness of high-grade, high interest notes and bonds is competing with the growing public distrust for assets denominated in paper currencies that has, until now, fueled the upsurge in gold prices. At least for the short run, rising interest rates are beginning to undermine prospects for further substantial increases in the price of gold.
. . .
"For those who view gold and gold mining stock as long-term insurance against inflation's ravages, gold remains an excellent investment. For the short term speculator, however, gold is no longer the surest bet in town. (BINGO)
(8/28/73, pp. 1 and 2)
"Even as prices are released from the freeze and most of them surge spectacularly to new highs, it is the drama of interest rate movements that commands the attention of those who seek some indication of the economy's future course.
. . .
"The Fed, which can only be as strong as the country's weak finances will permit it to be, has only the Hobson's choice of presiding over a recession soon after a further spurt of inflation, or a recession sooner without another spurt of inflation." (BINGO)
(5/8/74, pp. 1 and 20)
"Double digit inflation has now been joined by double digit prime interest rates. If maintained at this or perhaps higher levels, as they must be to successfully dampen inflation's raging fires, double digit unemployment . . . will soon join this unhappy list of economic woes, all of which are the inevitable result of the nation's fiscal and monetary policies.
. . .
"Last summer and fall, [the Fed] was faced with the Hobson's choice of either presiding over a recession soon after a further spurt of inflation, or a recession sooner without another spurt of inflation. As short term interest rates declined, it became evident that the Fed was shrinking from the brink, making its last futile efforts to avoid recession. Today's double digit interest rates indicate that the Fed is once again grappling with inflation, and the economy is once again teetering on the brink of recession. Having shrunk from that brink last summer and fall, it is now being pushed over.
(11/19/74, pp. 1 and 16)
"The future is also distressingly clear. As we enter inflation's final stages, the existing unpleasant side effects of the government's expansionist economic policies become increasingly dominant to the point of becoming unbearable, while the pleasant false prosperity disappears altogether. A wide variety of financial and economic dislocations accompanied by wildly fluctuating prices and unbearable interest rates destroys existing capital and deters the formation and investment of new capital. The more money we print, the less purchasing power we will have.
"The result is both increased unemployment and accelerated rates of price increases. Inflationary depression means unacceptable levels of both.
. . .
"For the present, as short term interest rates decline, and as long as the Federal Reserve keeps them down, the value of the dollar will continue to deteriorate, and the price of gold will soar. After the next acceleration of inflation, no mere lukewarm efforts at austerity will suffice to restore a semblance of stability. We have once again put off the bust that inevitably must follow our inflationary boom. The price we must pay for this temporary reprieve will be steep."
(2/18/75, pp. 1 and 5)
"Examination of the causes of this nation's rapid financial deterioration starkly contradicts current assurances by economic "experts" that the government sector of the economy is equivalent to the private sector in its contribution to the nation's material well being and economic health. In fact, the cost of this nation's massive governmental system is amongst the most important underlying causes of its current economic problems. Government is an almost unmitigated financial burden, . . .
"It is true that even massive cuts in government expenditures would not avoid the crash, and might even precipitate it. However, they would limit its depths and facilitate recovery. Indeed, further increases in government expenditures will accelerate financial deterioration and make recovery impossible. It will soon become evident that the 'big government' cure prescribed by government activists is worse than the illnesses aimed at, and increasingly ineffective as well. It's time for the American people to wake up to these harsh facts, and to respond to the government activists: 'Don't do me any more favors, just get off my back'."
And they did! I was one of the first - if not the first - to raise the call to "get the government off our backs."
(2/26/75, pp. 1 and 8)
"Eisenhower has long been maligned as a 'do nothing' President. However, his conservative approach to the commitment of federal resources might have, if continued, delayed indefinitely the current financial crisis. A good general, he understood the importance of not overextending a position, of keeping ample resources in reserve, of avoiding the full engagement of all resources at any one time.
. . .
"With each turn of the stop-go cycle of stagflation, as reflation replaces austerity before materially decreasing the forces of inflation, the financial situation will deteriorate further, and the additional commitments so heedlessly and joyously assumed during the Kennedy-Johnson years will have to be cut back until little will be left of these domestic programs. Most of those who have become dependent on them will be cruelly cut adrift. Incredible though it may seem to many, Americans will find that they have to look all the way back to Eisenhower, the man who believed in husbanding this nation's resources, for an example of a President who provided effective leadership and sustainable policies."
Indeed, Eisenhower keeps looking better to historians with each passing decade.
(7/7/75, p. 1)
"The Federal Reserve Board, with its finger on the money trigger, is the key to unraveling the mystery of the nation's economic course during the next two years.
"The Fed can opt for substantial recovery that would cause a rapid reescalation of price inflation. It can choose an austere inflation-fighting posture that would cause a precipitous rise in interest rates, sluggish economic performance and high unemployment. Or it can try to balance between the two, providing just enough money and easing of credit restraints to prevent a precipitous rise in interest rates as the recovery gets started.
"The Fed thus continues to appear as the primary variable in the economic problem. It has broad powers to accomplish many things. Unfortunately, it is hopelessly impotent with respect to the primary objective of government economic policy. It totally lacks any ability to foster the steady economic recovery without reaccelerated price inflation that our political leaders promise and the public so urgently desires. (BINGO)
(11/4/75, pp.1 and 12)
"The puzzle is not what caused the collapse, because the causes have been painfully evident for 20 years, but what kept it from occurring for so long. How could the supposedly sophisticated New York City media ignore the City's blatantly phony accounting and financial reporting practices for so long? How could its shrewd financial community continue to absorb its bonds and notes for years after bankruptcy became inevitable?"
Because the market knew what I didn't - that New York City was just "too big to fail" and would ultimately be bailed out. An early example of "moral hazard." My many verbal predictions of New York City bankruptcy were ultimately correct, but it took much longer than I expected.
(5/6/76, pp. 1 and 8)
"Now that everyone is convinced that the economic recovery is solidly based and scheduled to carry through 1977, and now that everyone is euphoric about the decline in the rate of price increases, it's time to consider why everyone is wrong.
"First of all, the financial strength of the United States and of the Western World as a whole has not been at a lower ebb at any time this century.
. . .
"Financial weakness also leaves the economy vulnerable to a variety of events that were insufficient to perturb it in the 1950s. War in the Middle East, crop failure in Russia, and price fixing by international cartels are possibilities that come most readily to mind. It is predictable that future months hold their share of unpredictable calamities. Financial strength, a nation's equivalent of money and credit saved for a rainy day, can shield an economy from many of these events for extended periods of time. This is why economic policies that appeared to work in the 1960s don't work any more. The economy of the United States no longer has any such shield." (BINGO)
(5/11/76, pp. 1 and 12)
"There is a glut of single family dwellings on the market in and around New York City. The Port Authority's huge World Trade Center looms like twin tombstones over the smaller privately owned office buildings that once were the pride of a thriving Manhattan and the staunch bulwark of its tax base. All the elements of a real estate market collapse of massive proportions are now in place in New York City and, to a lesser degree, throughout most of the New England area as well.
. . .
"In varying degrees, the entire northeastern region is plagued by high taxes, high energy costs, local governments hopelessly mired in massive debts and equally massive layers of bureaucracy, and a variety of anti-business, anti-profit attitudes that make it increasingly unpromising for enterprise. Labor is highly unionized and expensive. The region's vital railroad network is in a state of massive disrepair and is now in the hands of a government created agency that is unlikely to stem the rot. It's now as easy to ship out of and in to Newport News as New York City, and a great deal easier to do business in the vicinity of that and other southern ports."In fact, the nation is moving south, following the flow of capital, business and jobs, away from the over taxed, over regulated, over unionized, liberal dominated economic environment of what used to be the nation's commercial and economic heartland."
(8/11/76, pp. 1 and 8)
"Potential problems are not difficult to find. Balance of trade and balance of payments problems are likely to mount sharply during the third quarter of 1976. Supply disruptions threaten the recovery. The Fed could stumble in the weeks ahead, failing in the increasingly difficult task of avoiding financial instability without aborting the recovery. But the odds are now definitely on the Federal Reserve Board's side, at least until the election is over. As far as the real policy objectives of modern economic theory are concerned, that's all that matters."
(8/26/76, pp. 1 and 8)
"The price of gold has dropped dramatically from the speculative highs of the last few years, and it is currently fashionable to write learned articles explaining its demise as a monetary medium and its reduction to the status of an ordinary commercial commodity.
. . .
"The Democratic nominee [Carter] has stated that unemployment is a more important problem than inflation, thus indicating he has no conception of the fact that inflation is one of the primary causes of unemployment. Recourse by a Democratic administration, working with a liberal Congress, to policies of enlarged government deficits and accelerated monetary expansion could dramatically alter gold's prospects." (BINGO)
. . .
"Has gold been successfully demonetized? There is a definite conservative tide running in the world today. People everywhere have tried government activist policies, and have experienced firsthand the failures, the instability, the economic and social dislocation that these policies cause.
. . .
"Paradoxically, the liberal dream of successfully demonetizing gold can succeed only if this conservative tide prevails and restores responsible government to the United States." (BINGO)
(10/8/76, pp. 1 and 3)
"New government programs will mean new failures and additional waste of resources, and won't provide a suitable answer to the public's growing disgust with Washington.
. . .
"Thus, when Carter promises to pay for new government programs by increasing the tax burden borne by business, he is really promising to impose additional burdens on our already overburdened economy. All of these burdens ultimately fall on the public, as consumers and workers. To coin a phrase, ask not on whom the burden of business taxes ultimately falls, it ultimately falls on thee."
(11/18/76, pp. 1 and 8)
"The nation's financial stability is now so tenuous, and its financial strength so limited, that the gap between the initiation of stimulatory policies and inflationary results they cause, once measured in decades, will now be measured in mere weeks.
"Any acceleration of the Fed's printing presses will be followed with remarkable swiftness by turbulence in international money markets and a substantial decline of the dollar. Double-digit inflation will follow in mere months with a virulence that will once again astound and confound the economic 'experts.' Price and wage controls, if attempted, will prove a disaster. The forces of inflation will overwhelm them with unprecedented speed. Massive cuts in governmental expenditures and a substantial deceleration of the printing presses can cut this vicious cycle, but only if the nation can maintain such responsible policies in the face of severe recession and unemployment." (BINGO - A road map for economic developments during the Carter administration.)
(1/17/77, pp. 4-B and 9-B)
"The present economic recovery, like all others during the last 15 years, is based on the artificial stimulation of demand by means of government monetary expansion and deficit spending. It is not the result of increased economic efficiency, which is the only way sustainable economic advances can occur.
. . .
"It is easy to forecast that the government will either give up the effort to materially increase the rate of economic growth and reduce unemployment or, if it persists in the effort, will cause a further devaluation of the dollar and accelerate price inflation. Since inflation is the primary cause of unemployment, and acts in many ways to reduce the economy's ability to grow, and since we no longer have the financial strength to avoid the adverse results of inflationary policies, artificial stimulation of the economy will provide, at best, only six months of apparent economic recovery before monetary and financial turbulence reach dominant proportions."The government no longer has the ability to protect the nation from economic difficulties, but it can still determine the shape and degree of the difficulties that must be faced."
(9/20/77, pp. 1 and 8)
"As has happened several times since it plummeted from its post-dollar devaluation highs, the price of gold is again edging up around the $150 per ounce figure. This time, the move is likely to be for real. It is likely that gold will close out 1977 at levels considerably higher than $150 per ounce, and it should break its post-dollar devaluation record by the end of 1978. (BINGO)
"The Carter Administration is now giving clear signals that, when it comes to the choice between higher unemployment and higher rates of inflation, it will choose inflation. Since this is directly in line with the philosophy of the Democratic party, it appears only prudent to take these signals at face value.
. . .
"That more inflation will inevitably and quickly cause more unemployment and even higher interest rates is now self-evident. However, in a triumph of faith over reason, the politicians in power and the nation's most influential economists remain determinedly blind to reality. Indeed, because of the weakness of the nation's finances, the retreat from the battle against inflation should lead to acceleration of the rate of price inflation and the rate of devaluation of the dollar against the World's stronger currencies, and a steady upward trend in the price of gold, long before Congress goes home for reelection next year. (BINGO)"This has to be more bad news for the already depressed stock and bond markets, for entrepreneurs, and thus for workers and consumers who are ostensibly the primary beneficiaries of Administration policies. It may well be that we will be facing both higher inflation and higher unemployment as early as mid-1978. Efforts at government price controls will, if tried, of course prove a farce. With the credit of the nation and the World already grossly overextended, the subsequent inevitable effort to impose some measure of austerity sufficient to check runaway inflation will be accompanied by the gravest dangers of major financial collapses. A boom and bust cycle of vicious proportions is now in the making. (BINGO)
(11/10/77, pp. 1 and 7)
"A valiant and skillful effort is drawing to an ignominious close. The Federal Reserve Board, in the face of growing political pressure, has staunchly maintained its increasingly difficult course, seeking to slowly bring the nation's exploding money supply under restraint. Its efforts involve a massive balancing act that monthly grows more difficult. It must hold back the rate of growth of money and credit availability to keep inflation in check but avoid pulling in the reins so sharply as to check the nation's fragile economic recovery.
"The Fed's success these last two years at this well-nigh impossible task has been brilliant, and Arthur Burns and his cohorts, previously the subject of harsh criticism by this writer, now deserve praise for their efforts.
. . .
"Leading economists are slowly coming to recognize what has been obvious for the last year, that official predictions of continuing economic recovery accompanied by only modest increases in inflation rates are impossible. Either inflation must accelerate to double digit levels, or the recovery must end.
. . .
"As events unfold, Congress and the Carter Administration will undoubtedly seek to monopolize the media with rhetoric casting blame on business and the Fed for the economy's increasing difficulties. The public should not be fooled. Runaway inflation can only be caused by government. Business is helpless in the face of massively irresponsible fiscal and monetary policies. While the Fed rightly was the target for its share of the blame in previous years, it is now the only arm of government acting with any insight and skill to put off the inevitable. It is Congress and the Carter Administration that must take full blame for the course of economic events during the next few years."
(1/14/78, p. 6B)
"The weakness of our financial and economic position leaves our economy vulnerable to any major storm that may break in 1978, and the continued deterioration raises other threats.
. . .
". . . 1978 should see continued deterioration of the dollar and a new record high for the price of gold. Equity securities will continue depressed, with prices on the New York Stock Exchange fluctuating in the existing range and continuing to lose ground to inflation. (BINGO)"Interest rates, inflation, and unemployment will trend higher. Indeed, if interest rates and unemployment don't reach double digit levels sometime during the next eighteen months, inflation will. The predictions of most economists will thus be proven wrong." (BINGO)
(2/8/78, pp. 1 and 3)
"It has been almost two decades, now, since I first began wandering in the foothills of public opinion, telling all who would listen that our government's new economic clothes are a fraud. Ten years ago, I published a book accurately predicting the devaluation of the dollar and the financial disruption of the 1970s, and five years ago my columns began appearing in the Miami Review explaining the intractable nature of the nation's financial problems and the reasons why all the government's economic initiatives were doomed to frustration.
. . .
"The evidence against those who have sold this nation on its current economic policies has become quite massive. Over a quarter century of repeated and growing mistakes, failures and frustrations has been added to the massive list of weaknesses in basic theory. The continued belief in modern economic theory will go down in history as one of the most remarkable triumphs of dogma over logic in the history of man."
(3/15/78, pp. 1 and 2)
"Not a word has been printed about it in the popular press or even in the financial press, and nobody has said a word about it in official or intellectual circles, but an event of possibly great significance has taken place in the last month.
"The Administration and the Federal Reserve have given up, at least for the moment, trying to maintain the balance between more inflation and slower economic growth, opting instead for the inflationary choice. (BINGO TO THE MAX!)
. . .
"The decline in the purchasing power of the dollar has had, and is having, a serious effect on the purchasing power of the struggling underdeveloped nations that rely on dollars as financial reserves and as the medium of exchange for transactions in international markets."This is happening just as many of them are reaching the limits of their borrowing power and are struggling under the burdens of massive debts recently assumed. (BINGO)
. . .
"Inflation has already passed the point where more money means less purchasing power. Further artificial stimulation, further acceleration of the printing presses, will mean a rapid acceleration in price inflation, so that placing more money in circulation will lead to an even greater reduction in the purchasing power of money and credit already circulating. (BINGO)
. . .
"Absent such a contraction in government imposed burdens, a massive economic contraction begins to look both inevitable and imminent. Will the next crash come in 1979? It's beginning to look like a real possibility."
(4/24/78, pp. 1 and 2)
"It has been only about three months since the Carter Administration surrendered to inflation. Nevertheless, the nation's finances are now so weak, and its inflation in such an advanced stage, that this few month's vacillation has already caused observable harm to the economy.
. . .
"It is now a good bet that double digit inflation and interest rates will be back again before the end of this year and even, perhaps, before the November election. (BINGO)"This scenario is now becoming so evident that even this nation's generally myopic professional and government economists are beginning to voice concern and hedge their earlier optimistic predictions."
(5/9/78, pp. 1 and 3)
"How much from the public treasury will it cost for the Carter Administration to buy this year's Congressional election for the Democratic Party? For starters, they will expend 1,800,000 ounces of gold (approximately $315 million at approximately $175 per ounce) in six monthly sales of 300,000 ounces (approximately $52.5 million each).
. . .
"Thus, the only logical result of the Carter Administration's recent allegedly anti-inflation efforts will be to give the economy a temporary respite from the acceleration of the rate of price increases, a semblance of stability and prosperity that will last, the Administration hopes, at least until this November's elections. The underlying forces of inflation, however, are not being addressed, and will be growing massively throughout the year."After this November's elections, the lid will be taken off, if inflation doesn't quite achieve enough power to blow it off before then.
. . .
"The dollar will be again permitted to resume its rapid decline, and double digit inflation, interest rates, and unemployment will stalk the land. (BINGO)"These are just some of the most obvious costs the public must pay to enable the Carter Administration to buy this November's Congressional elections. Of course, the Nixon Administration acted just as badly, but only during Presidential elections.
. . .
"The Carter Administration's economic strategy for the 1980 Presidential election will undoubtedly be similar. All the economic bullets that must unavoidably be bitten will be bitten in 1979.
Carter proved too inept even for this. The effort to get a grip on inflation was delayed until the fourth quarter of 1979, leaving Carter with a recession in the middle of his reelection campaign.
"The economy will stagger like a drunken sailor under massive inflationary and deflationary tides striking at the same time. The dollar will again, as in 1977, be permitted to plummet to, and probably will be encouraged to plummet somewhat beyond, its true market value, thus easing somewhat the problem of stabilizing it for the 1980 election year. (BINGO)
(5/17/78, pp. 1 and 3)
"Present anti-inflation efforts are an election year farce. Billions of dollars of the nation's gold and other financial reserves are being wastefully expended in the effort to stabilize the dollar until after the November election. Voluntary price restraint programs, jawboning and, if imposed, price and wage controls are all futile gestures of only symbolic importance. They serve to give the false impression that inflation is being fought when it actually isn't, and are thus properly viewed as part of the partisan politics of an election year.
"Current efforts will collapse after the November election, if not sooner, with results similar to those following the devaluation of the dollar in 1973."
(6/15/78, pp. 1 and 3)
"It's getting to be a monotonous refrain.
"The economic "experts" continue in their long batting slump. For the umpteenth time in the last two decades, they have egg on their faces with respect to predictions about the course of our inflation-ravaged economy.
"Instead of the 6 to 8 1/2 per cent inflation and primary interest rates predicted for 1978, we already have double digit inflation, primary interest rates over 9 per cent, mortgage rates over 10 per cent, and still half of 1978 to go.
. . .
"This remarkable record of consistent failure, which the mass media continue to refuse to remark about, is caused by a continued lack of understanding of the forces of inflation. This weakness is pervasive among the mass of economists who still rely on modern economic theory for their understanding of the way our economy works.
. . .
"Thus, as 1978 reaches midpoint, I have the dubious pleasure of seeing all my predictions of economic troubles being fulfilled, and all the optimistic predictions of the mass of economic experts falling by the wayside. I take little pride in this, since the task was so simple, the stupidity of the 'expert' views so depressingly clear, and the economic results of Administration policies so obvious and so harmful to this nation's economy.
. . .
"The wonder further is that those who stubbornly continue to refuse to understand the awful realities of inflation can continue to be recognized as 'experts' on economic matters by political leaders, the academic community, and the mass media. So benumbed by ideology and bias are these mules, that you can't get their attention even when you hit them with the proverbial two-by-four."
(6/30/78, pp. 1 and 3)
"With more than four months to go before the November elections, inflation is already manifesting itself in accelerated rates of price increases; double digits are already the order of the day and, if decisive efforts to control the economy aren't soon forthcoming, rates as high as 12 percent on a per-year basis could be with us by October.
. . .
"The dollar is reacting quickly to these problems, staggering once again despite efforts to support it. The price of gold is rising impressively in the face of substantial sales from government reserves. These are ominous portents for the Democrats as the party presently controlling the government."The stock market's recent boomlet was based on the decision to support the dollar, and the increasing evidence that the U.S. Government no longer has the strength to do this for more than a few months at a time will act, along with rising interest rates, to undermine stock prices. A rapidly falling stock market is not good for incumbents.
. . .
"It appears that [Carter's New Deal] ideology makes it impossible for him to realize that government is not the answer, government is the problem."A bust in 1979? Unless the government gets off our back it's very possible."
I was one of the first, if not the first, to start hammering away at the "government is the problem" and "get the government off our backs" themes in the 1970s.
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Copyright © 1999 Daniel Blatt