One of Gerald Celente’s predictions has been for the rise of a “progressive libertarian” movement in the United States; wherein members of both the left and the right, who have been abandoned by Washington DC, join forces. Robin Koerner, a Democrat, and Obama voter in 2008, has written a superb piece for the Huffington Post, which seems to have struck a chord with alienated Democrats. He has put forth a particularly convincing argument that, Democrats who truly believe in the cause of peace and personal liberty, are compelled to vote for Ron Paul in 2012.

But what is particularly savvy about Mr. Koerner’s article is that he understands the real fight for Ron Paul is not in a potential general election, but in the Republican primaries. For Ron Paul is just as much an outsider, and foe of the so called neocons, as they are. Take a look at this recent graphic posted on The Morning Joe as an example of just how much the GOP establishment fears Ron Paul. Even though Dr. Paul would rank #2 on this list, he isn’t even presented to the American public as being a candidate. www.ronpaul2012.com shows more than $4 million raised second quarter.

Mr. Koener’s argument is that we have reached the point where we must look beyond the traditional labels of Republican and Democrats, and vote for principles. He points out the Dr. Paul is really a Libertarian who understands that, in a two party duopoly, you must use the system to your advantage. To that end, he is is encouraging Democrats to do the same. And to officially register as Republicans, for a year, in order to vote for Ron Paul in the primaries. He’s even come up with a catchy moniker to rally support around: Blue Republicans.

I’ve been watching this article since is came out yesterday, and while it hasn’t really gone viral yet, I think it could. Just reading through 75 comments or so, it’s becomes obvious that Mr. Koener has struck a chord with frustrated Democrats (and Independents). His Blue Republican “manifesto” appears to have the right mix intellectual and emotional justification to get people excited. He has also provided a way for them to make a difference through a specific course of action. Already in the comments, a number of Democrats stated that they had just registered as Republicans in order to support Ron Paul in the primaries.

I also see there is now a Facebook page started for Blue Republicans, complete with logo.

The original article is well hidden, deep within the Huffington Post site. I encourage you to send the link to friends to who believe in the cause of peace and personal liberty, and that may not realize that their candidate currently resides in the Republican party.  Further, Ron Paul is the only candidate that has exhibited any evidence that he understands the importance that sound money plays in a sound economy.  In short, Dr. Paul understands gold.

Perhaps the most prevalent mental images of the Great Depression of the 1930s are the photos of the soup lines and breadlines where the “down and out,” those with absolutely no hope, stood waiting meals.  Today, however, soup lines are a thing of the past, and they will not be evidence of just how bad the economy is.   Today, we have statistics to illustrate the state of the economy.

But, statistics stir no emotions.  They are numbers in tables, figures on graphs.  It’s hard to identify with a graph of rising food stamp recipients, but even the old photos of the 1930′s Depression causes one to feel for those standing in line, who want only meals.

Yet the graph below is evidence of just how bad things are in the US.

Since just before the recognition of the Global Financial Crisis, food stamp recipients have climbed 65%.  That’s a huge increase in Americans living on food stamps.  Perhaps one could argue that the 26 million on food stamps in 2007 were institutionalized, and that they viewed food stamps as a way of life.  However, as for the 17 million added in the last four years, they are probably productive members of society who no longer can find work.

 

Mac Salvo, in an article on www.lewrockwell.com, discusses this topic further.  Included in Salvo’s piece is a 1:27-second video of Treasury Secretary Timothy Geithner asserting that TARP and quantitative easing “averted a second Great Depression.”  That remains to be seen, but so far there is little evidence that we are out of the recession.

Geithner also wants to rebuild America with “make work” projects.  “Make work” projects, although they provided jobs for some in the 1930s, only extended the Great Depression and were one of the reasons it lasted ten years.

A primary principle of Austrian economic theory is that bad investments must be allowed to fail, the assets liquidated and the capital redeployed in productive projects.  When politicians get to decide what businesses remain afloat (usually through bailouts but sometimes through protectionism), the economy stagnates until finally it becomes evident that those businesses cannot make it, even to politicians.  Unfortunately, by then it is a full-blown depression, and that may be what we are facing.

Sadly, Geithner also assets that we are in this horrible economic situation because of “a long period of lost opportunities to do things to make America stronger.”   As a former President of the New York Fed and a member of the Board of Governors of the Fed, Geithner endorsed the Alan Greenspan’s 1% discount rates that gave us the housing crisis, which, according to most analysts, was the cause of the Global Financial Crisis.  You have to wonder what Geithner was taking about when he spoke of “things to make America stronger”

At the end of World War I, the American economy faced the enormous task of retooling for peacetime. No longer needed were the factories used to support the war effort, or the giant agricultural exports to a Europe that couldn’t grow its own food. The process of shuttering excess war capacity, and its associated layoffs, produced a huge contraction in economic output.

Gross National Product declined nearly 7% in 1920-21, compared with a fall of 8.6% in 1929-30. Unemployment rose from 5.2% to 11.7%. Automobile production declined by 60%, and all industrial production was down almost 30%. The stock market fell 47%.

When performing the task of reorganizing resources, the thing to understand about free markets is that they do so in the quickest manner possible. Time is money, as almost everything depreciates. For owners of assets being liquidated, their goal is to sell as quickly as possible to obtain the best price. Purchasers of these assets are motivated to put them to use in the shortest amount of time in order to start earning a return.

For the recession of 1920-21, the free market reorganized the economy in about a year and a half. By Late 1922, industrial production had returned to peak levels and the unemployment rate was down to 6.7%. In 1923. the unemployment rate was only 2.4%.

And, what was the government’s response to the recession of 1920-21? Nothing. Well, that’s not quite true: President Warren G. Harding cut the federal budget by half and reduced taxes. There were calls for government aid and stimulus from Congress but Harding ignored them all.

So what then is the difference between a recession and a depression? The answer is time. A depression is a recession that drags on for an extended amount of time. And there is only one way that can happen – through government intervention.

When governments and politicians become involved in recessions, there arises a great need to do something. But invariably this something always amounts to preventing the economy from making the necessary changes to align itself with the present needs of the market. In an effort to maintain the status quo, bailouts and stimulus spending are called upon to calm a concerned constituency.

This was not Harding’s approach. In fact, he put it fairly bluntly in his inaugural address:

“Our most dangerous tendency is to expect too much of government, and at the same time do for it too little. We contemplate the immediate task of putting our public household in order. We need a rigid and yet sane economy, combined with fiscal justice, and it must be attended by individual prudence and thrift, which are so essential to this trying hour and reassuring for the future.”

Along with:

“There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization. I would like government to do all it can to mitigate; then, in understanding, in mutuality of interest, in concern for the common good, our tasks will be solved. No altered system will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.”

It is interesting to note that Harding’s secretary of Commerce, Herbert Hoover, favored intervening in the economy in 1921. He would later have his chance in 1932 when he pursued a massive increase in the Federal budget to stimulate the economy. Included in his budget were numerous make work projects. He also bailed out failing banks that made bad loans during the booming 1920s.
We are all aware of how the recession of 1929-30 turned out; the decade-long Great Depression.

The case of America in 1920 presented a situation in which significant changes to the economy were necessary to align its production with the needs of the peacetime market. So what would the government’s response to such a situation be today?

It would probably start with bailouts of the factories producing war materials in order to “save jobs.” Provide them with the time and money to produce a new product that someone else, with the relevant expertise, was already making. Society ends up with an inferior and more expensive version of the product. And if that weren’t bad enough, it is forced to finance its development via taxes – taxes that, if left in the private sector, would have been spent in other areas to create new jobs.

When you look at the entire picture of economic intervention, and follow all of its consequences, it becomes clear that the only thing government can do is delay a recovery, and waste a tremendous amount of money in the process. It is ironic that we now look to copy the economic policies of the Great Depression – because it was the worst economic period in American history – when it was precisely those policies that made it the worst economic period in American history.

Clearly a reckless Federal government is good for gold – or more accurately – our collective can kickers in Washington DC are very bad for the dollar. Take a look at the very telling graph below.

Contrary to the disinformation campaign of Wall Street, and their Federal Reserve sponsored economists, gold is not a bubble. Central banks are now net buyers of gold, and not because of tradition, as Mr. Bernanke would have you believe.

They are buying gold because it is the foundation of the global monetary system. It is the only form of money that can extinguish debt. Paper money that is piled up in foreign reserves is simply an IOU that may or may not be good in the future. Gold held in foreign reserves has no such counterparty risk.

The bottom line is that we are heading into a period where the seemingly endless expansion of paper, be it debt instruments or fiat currencies, can no longer be sustained. Short term machinations aside, the relative value of gold will continue to increase until the unsustainable levels of debt have been cleared from the system.

Gold recognizes the fact that our debt levels have past the point of no return. The current “debates” over the debt ceiling in the US and bailouts for the PIIGS in Europe are just noise. In the coming storm of debt destruction, wealth will continue to seek safe harbor in the form of gold.