Government Confidence Crisis

2015 may be the year the government confidence crisis comes to a head

Bullion.Directory precious metals analysis 16 January, 2015
By Terry Kinder
Investor, Technical Analyst

2015 seems to be off to a shaky start. Whether it be continuing tensions in the Ukraine, the Swiss National Bank breaking the peg with the euro, the inability of the Fed to spur inflation in the United States or gold seemingly gaining some traction and what that might mean. Lost in much of the analysis of more narrow aspects of the current crisis is the fact more broadly we face a government confidence crisis where the citizenry has simply lost faith in government promises.

I’m not sure if it was Gerald Celente who said it, but you can’t have confidence without the con. For that matter it takes a con to have a Congress as well.

Well, 435 cons to be exact. Citizens around the world have bought the con for years. In fact, the public has conned itself, believing that somehow the government can deliver on its promises of healthcare for all, the end of economic cycles of booms and busts, and the idea that the seed corn of tomorrow can be eaten today with no ill consequences in the future. It was a beautiful but false illusion.

As if that weren’t enough the recent attack in France on Charlie Hedbo gives the lie to the idea that a seemingly all powerful government surveillance state can protect its citizens. Sure, government may come along to pick up the pieces after you are dead and bring your killers to justice, but you’re still dead and your unique point of view has been silenced at least temporarily. The sad truth is that the state, in creating its police and military, aim to protect life and property only secondarily, as violence and instability reduce state revenue, and that is what is important to the state – its own enlargement.

The state makes its false promises of economic prosperity through redistribution, hoping you will never realize that if the government takes a dollar, a pound, a yen, a euro, a ruble or a yuan, and moves it from A to B there are no more dollars or wealth created. Government creates nothing of value that it first does not take, divert, steal, or borrow first. The simplest way to look at it is to imagine you have one dollar in your left pocket. Reach into your left pocket and remove the dollar. Now put the dollar in your right hand and place it in your right pocket. How many dollars do you have? Assuming your other pockets were empty, you still have one dollar.

Of course, with government, it isn’t as simple as one dollar moving from A to B. No, with government, you have a bit of overhead – bureaucracy, palms to be greased, exorbitant salaries and benefits to be paid, money that mysteriously disappears to destinations unknown, etc. Oh, don’t forget all of that interest on the debt. So while there isn’t less money overall in this exercise, government moves a dollar from A, and B receives far less than a dollar.

It gets worse. As the government takes more dollars from A and gives them to B, A starts to feel less and less incentive to work to earn those dollars. Why should A work so hard if more and more reward goes to B who did nothing to earn it. You can say that A is selfish. It may even be true. But ask yourself this, if you’re A, are you willing to give every last penny to B? That’s where this exercise is leading. At some point A will no longer be willing to work as hard if at all.

Politicians have an incentive to keep taxes as low as possible and spending as high as possible. The incentives aren’t compatible – not only with each other, but also with a vibrant and growing economy. Eventually debt starts to swamp everything. However, government stimulus – or so called quantitative easing – did not have the effect that many in the gold community thought it would of high or hyperinflation. There were many reasons for this, including the reduced velocity of money, but really what is needed is a new understanding of the nature of gold and what it really is. Martin Armstrong got it right when he wrote:

I have warned that gold is NOT A HEDGE against inflation, it is a HEDGE AGAINST GOVERNMENT and that is what we are watching – the European hedge at the moment against the collapse of the Euro. In this context, gold and the dollar can rise together. Gold is not only a dollar influenced commodity.

That isn’t to say you can’t use gold to hedge inflation, but more generally money is flowing into gold in order to hedge against government. Chris Lemieux tellingly asked, regarding the peg of the Swiss Franc to the Euro, if lessons had been learned? It’s a fine rhetorical question, and the answer is obviously no. Government almost always does not learn the lessons that history teaches. It has no incentive to learn. There is no profit motive in government, except for officials to line their pockets all the way through the inevitable collapse whenever it occurs, whether today, tomorrow or centuries from now.

Armstrong makes another valid point as well about the political orthodoxy of most analysis:

We have so much to learn and it seems there is no incentive to make that small step forward to save ourselves and our posterity from the same repetitive nonsense that clouds our future. We remain blind, deaf, and politically-muzzled with little hope of making life better. Political-correctness in analysis is killing us. It certainly is reducing our ability to survive what awaits us ahead.

As much as the gold community is liberty loving and freedom minded, it equally loves its orthodox point of view. Perhaps this partially owes to the fact that the gold community has been attacked so viciously for so long by the keepers of the current order that any disagreement, large or small, is seen as an attack on gold itself.

There are still many things beyond our understanding about how the world works, although we are on the cusp of a much greater understanding. As this understanding spreads, and people begin to understand the lies government has told them, confidence in the all powerful facade of government has begun to crack. It radiates out in ways, through money flows and individual actions, that looked at separately, within the context of any one nation-state, make little sense. An action, such as QE that has one outcome in the United States, has the opposite outcome somewhere else. There is no one size fits all solution and the key to growth and innovation is not held by politicians, bureaucrats or central bankers. Prosperity is not found through redistribution or magical money creation. Wealth is generated through the inspired gift of human creativity, innovation, invention, and the seeking of individual reward. There is no government substitution that can replace the spark of individual creativity and incentive to build a better life, which in turn generates the wealth that allows us to live in a better society and better world.

We are in the midst of a government confidence crisis. Citizens, increasingly, no longer believe the con of an all powerful government as source of protection and prosperity. As people more clearly see the con of the government confidence game, they are seeking gold as the ultimate hedge against the false promises of government.

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