- Joined
- Oct 17, 2007
- Messages
- 11,862
- Reaction score
- 10,300
- Location
- New York
- Gender
- Male
- Political Leaning
- Centrist
Country: United States
Year: Around 2040
During its largest outbreak of inflation coming out of the 1970s and then an historic financial crisis, the Federal Reserve had demonstrated its mettle in heroic fashion. Fed Chairman Paul Volcker slayed the inflation dragon, even as critics of a fiat currency felt that the fiat system itself had failed forever. A generation later, Ben Bernanke engineered an extraordinary burst of innovation, preventing the collapse of the nation’s banking system and onset of a new Great Depression. In a rational world, the Fed had proved its immeasurable worth.
But rationality does not always prevail. It is not always the normal condition. The irrational Gold bug, seduced by the metal’s glitter and a romanticized view of its perfection, had not gone extinct. Feeding on the long-period of sluggish growth that typically follows the collapse of a highly-leveraged real estate bubble, they multiplied in number. Every fiscal decision that contained a whiff of Keynesian backing drew increasing swarms of gold bugs. Every FOMC monetary policy statement was followed by what grew to be a deafening buzz of the gold bugs.
By the late 2020s, the Congress fell to the gold bugs. By 2032, in the face of growing fiscal imbalances from mandatory spending programs, the gold bugs won the White House. What had started as a seemingly moderate initiative to “audit” the fed (even as it is regularly audited), became a full-fledged abolition movement. By 2035, the Fed was gone. In its place, was a renewed gold standard.
Economists had warned more than a century earlier that gold supply constraints could only lead to long-run economic strangulation. The Gold Bugs brushed aside such heresy. Nevertheless, the laws of supply and demand proved beyond the control of even the Gold Bugs. Economic growth stagnated and prices fell.
As prices fell, real household, corporate, financial, and government debt burdens rose. More and more, households and businesses diverted cash from consumption to debt payment in a desperate bid to avoid drowning in rapidly rising real debt burdens. As an enormous consumption drought took hold, the rate at which prices fell accelerated. Real debt burdens rose even faster.
A rush for the exits was soon underway. Cell phone service collapsed as people began withdrawing funds from banks. Banks were shuttered. Stock prices collapsed. Real estate prices plunged. A fiscal crisis exploded. Vicious feedbacks led to intensifying deflationary pressures.
There was no central bank any more. No one could play lender of last resort. The notion of fiscal stimulus had been driven into extinction by triumphant Gold Bugs in the 2030s. The Austrian doctrine had rendered fiscal policy powerless and irrelevant.
Now, a howling storm of vanishing consumption, massive deleveraging and plunging prices was raging. The Category 5 deflationary hurricane was battering the American economy, bringing misery, hardship, and despair across households, industry, and government. No one was spared.
Furthermore, this deflationary storm was rapidly overspreading the globe (except for North Korea, which remained locked in a strait jacket of misery of its own making), as deflation ripped through the world’s intensively interconnected financial and trade linkages. Where Depression had not yet arrived, Depression was imminent. Given the vast size of the imploding American economy, the world’s economies were being sucked into Depression with about as much hope of escaping ruin as matter has when swirling into a black hole.
A new “Golden Age" had dawned.
Year: Around 2040
During its largest outbreak of inflation coming out of the 1970s and then an historic financial crisis, the Federal Reserve had demonstrated its mettle in heroic fashion. Fed Chairman Paul Volcker slayed the inflation dragon, even as critics of a fiat currency felt that the fiat system itself had failed forever. A generation later, Ben Bernanke engineered an extraordinary burst of innovation, preventing the collapse of the nation’s banking system and onset of a new Great Depression. In a rational world, the Fed had proved its immeasurable worth.
But rationality does not always prevail. It is not always the normal condition. The irrational Gold bug, seduced by the metal’s glitter and a romanticized view of its perfection, had not gone extinct. Feeding on the long-period of sluggish growth that typically follows the collapse of a highly-leveraged real estate bubble, they multiplied in number. Every fiscal decision that contained a whiff of Keynesian backing drew increasing swarms of gold bugs. Every FOMC monetary policy statement was followed by what grew to be a deafening buzz of the gold bugs.
By the late 2020s, the Congress fell to the gold bugs. By 2032, in the face of growing fiscal imbalances from mandatory spending programs, the gold bugs won the White House. What had started as a seemingly moderate initiative to “audit” the fed (even as it is regularly audited), became a full-fledged abolition movement. By 2035, the Fed was gone. In its place, was a renewed gold standard.
Economists had warned more than a century earlier that gold supply constraints could only lead to long-run economic strangulation. The Gold Bugs brushed aside such heresy. Nevertheless, the laws of supply and demand proved beyond the control of even the Gold Bugs. Economic growth stagnated and prices fell.
As prices fell, real household, corporate, financial, and government debt burdens rose. More and more, households and businesses diverted cash from consumption to debt payment in a desperate bid to avoid drowning in rapidly rising real debt burdens. As an enormous consumption drought took hold, the rate at which prices fell accelerated. Real debt burdens rose even faster.
A rush for the exits was soon underway. Cell phone service collapsed as people began withdrawing funds from banks. Banks were shuttered. Stock prices collapsed. Real estate prices plunged. A fiscal crisis exploded. Vicious feedbacks led to intensifying deflationary pressures.
There was no central bank any more. No one could play lender of last resort. The notion of fiscal stimulus had been driven into extinction by triumphant Gold Bugs in the 2030s. The Austrian doctrine had rendered fiscal policy powerless and irrelevant.
Now, a howling storm of vanishing consumption, massive deleveraging and plunging prices was raging. The Category 5 deflationary hurricane was battering the American economy, bringing misery, hardship, and despair across households, industry, and government. No one was spared.
Furthermore, this deflationary storm was rapidly overspreading the globe (except for North Korea, which remained locked in a strait jacket of misery of its own making), as deflation ripped through the world’s intensively interconnected financial and trade linkages. Where Depression had not yet arrived, Depression was imminent. Given the vast size of the imploding American economy, the world’s economies were being sucked into Depression with about as much hope of escaping ruin as matter has when swirling into a black hole.
A new “Golden Age" had dawned.