“I think it’s crucial for everyone to understand that the bubble economy is now on government life support. In other words, it is the deficit spending by the U.S. government that is preventing us from collapsing into a new Great Depression,” said Duncan.
Irvine, CA (PRWEB) December 12, 2011
Richard Duncan, author of the book “The Corruption of Capitalism: A Strategy to Rebalance the Global Economy and Restore Sustainable Growth,” joined the popular Creating Wealth Show’s podcast in its 229th episode. The podcast presented a piercing look at government decisions that created our unbalanced U.S. economy and its nearly untenable position in the global arena.
“A disaster of this magnitude doesn’t just develop overnight,” Duncan said. “This crisis originated back in the 1960s when U.S. government leaders abandoned the core principles of economic orthodoxy, balanced budgets and sound money backed by gold—and it opened Pandora’s Box.”
Duncan explains that the problem began during the Vietnam War. He believes the foundation for our current economic crisis was laid by President Johnson. “Johnson was spending too much money on the Vietnam War overseas and on the Great Society domestically,” Duncan continued. “When the government spends a lot of money, it stimulates the U.S. economy. When the economy is booming, the country imports more from abroad.”
Importing allowed other countries to convert import monies into U.S. gold. The result was that the U.S. lost half of its gold reserves. In the early 70s, when President Nixon ended the gold standard, the new president had no choice.
“Ending the gold standard was a good solution in the short run,” explained Duncan, “but it’s really led to a worldwide credit bubble. There’s so much debt outstanding that people don’t make enough money at their jobs to pay the interest on their debt. When that happens, that destroys the capital in the banking system.”
When the bubble started bursting in 2008, the U.S. government had no recourse other than the two-part plan it executed. Part one was “quantitative easing.” That means the Fed started printing money. Part two was raising the deficit in order to avert a depression.
“In a sense, we’re on the razor’s edge” Duncan commented. “On the one hand, if the government doesn’t intervene by printing money and having the massive trillion dollar budget deficits, then the global economy is going to deflate, resulting in depression. On the other hand, if they print too much money and create a deficit that’s too large, we’re going to flip over into a situation where we have higher prices and inflation.”
He said that food prices around the world have inflated because of the Fed printing more money, causing a massive problem in third world countries. He suggested that U.S. inflation, by definition, may have been a causational factor in the Arab Spring.
“I think it’s crucial for everyone to understand that the bubble economy is now on government life support. In other words, it is the deficit spending by the U.S. government that is preventing us from collapsing into a new Great Depression.”
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