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  • March 2008
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History Repeats Itself

There are striking similarities between the economic crisis of the 70s and the current crisis. The 1970s crisis was caused by needless Vietnam war spending, an excessive trade deficit, and rising oil prices/falling dollar. Sound familiar? I wasn’t even old enough to understand what was going on back then however I do read and do know a little about history—enough to realize that history is in many ways repeating itself. Today this article came out detailing exactly what I have been noticing:

From LewRockwell.com:

“Déjà vu, All Over Again”

The credit markets were reeling and people across the globe had lost confidence in the dollar. American tourists overseas found that many places in Europe were reluctant to exchange their dollars for European currency, and the world banking community was even more in an uproar.

Furthermore, U.S. armed forces were bogged down in an unpopular war overseas, and the U.S. economy seemed to be moving into a recession. Foreigners holding dollars were nervous and wondering if they had been fooled into holding worthless paper.

I am not describing the current economic scene in the United States; instead, this is a description of the crisis of August, 1971, when the U.S. dollar collapsed as the government’s currency Ponzi game ran its course, and Americans found it was time to pay the piper. The 1970s were wracked with stagflation, slow growth, economic uncertainty, and political turmoil.

Apparently, the lessons to be learned of the dollar’s collapse in 1971 have not been learned by the current crop of “leaders” in Washington and on Wall Street, but the thing about laws of economics is that they are impervious to the wishes and commands of politicians. Contra Franklin D. Roosevelt, who insisted that economic laws had been made up by people and could be changed by fiat, one cannot command an economy into prosperity. . . (Read Full Article)

2 Responses

  1. Actually, I think that, on the surface, the economic situation in the ’70s may seem similar to today, but there is actually little in common.

    Until 1976, the U.S. still enjoyed a thin balance of trade. But confidence was eroded by three major factors: (1) The Arab oil embargo of 1974, (2) 16 years of war in Vietnam that finally ended in 1975 after 58,000 American deaths and (3) the Watergate debacle. It was an awful time for America.

    Today’s economic crisis is entirely different. Since 1976, our misguided trade policies have racked up a cumulative trade deficit of almost $9 trillion, and it grows by $55+ billion every month. This has been financed by a sell-off of American assets – a transfer of wealth from the U.S. We have been trapped in a host-parasite relationship with the rest of the world, and the host is slowly dying. The value of the dollar has been eroded by flooding the world with dollars through our trade deficit.

    It doesn’t have to be this way. I have recently published a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” To make a long story short, this new theory proposes that, as population density rises beyond some optimum level, per capita consumption begins to decline. This happens because as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (which always rises), inevitably yields rising unemployment and poverty.

    This theory has huge ramifications for U.S. policy toward population (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – unemployment and poverty – are actually imported when we attempt to trade freely in manufactured goods with nations that are much more densely populated than our own. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to our healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs. It’s a sure-fire loser, tantamount to economic suicide.

    If you’re interested in learning more about this new theory, please visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in my blog discussion and, of course, purchase the book if you like. (It’s also available at Amazon.com.)

    Sorry if this reply seems a little “spammish,” but I don’t know how else to inject this new perspective into the debate about our economy without drawing attention to the book.

    Pete Murphy
    Author, Five Short Blasts

  2. Thanks for your insights Pete, I think you have some very good points. The very aptly described “host-parasite” relationship is definitely backfiring on the US. When one considers the immorality of the fact that U.S corporations are basically riding the backs of slave laborers in other nations (China) in order to keep prices low, there’s little question that there will be negative consequences. You reap what you sow, is the appropriate maxim. I think our economic forces have been sowing the whirlwind, unfortunately.

    It’s hard to deny the similarity between the excessive war spending of the 60s-70s and the war spending of today (trailing back into the 90s, since it has really been a 10 year war, as Ron Paul points out, not to mention the First Gulf War) and the impact this spending has had on the respective economies. But as you pointed out, it doesn’t help economic confidence either.

    I wonder if a parallel might be drawn between the Watergate scandal and the impact it had on economic confidence, and then today the 911 uncertainties and the record low levels of approval/confidence in the the Bush administration? This certainly wouldn’t help a fiat monetary system reliant on confidence in the leadership as well as in the fundamentals of the economy.

    I’m interested in learning more about your theory and I’ll visit your website soon. Thanks for your comments. Feel free to interject your thoughts on some of our other economic posts here at DLR.

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