SANTAYANA'S  ECHO


Andrew Gause, economic historian, was a guest on the Art Bell radio show on February 10, '96, and discussed the current crisis in America. Having studied America's economic picture since the days of its Continental infancy, Gause has spoken on over 400 radio programs about the current administration's abuse of taxation and shifty ways of looting pension funds (Social Security, Medicare, retirements, etc.), and creative bookkeeping to account for it.

Among the issues mentioned, Gause recommended taxation on a fair basis, rather than the idea of a tax at a flat percentage rate. While attractive to some for its illusion of reduction, the Flat Tax is still based on the old principle of taxing wealth produced by citizens. The alternative is more logical and ultimately fair, for it taxes not what you make but what you spend -- a consumption tax. The more you buy, the more tax to pay. That's it. Simple. One tax. Not federal, not state, just consumption. Sensible. And no forms to fill out.

Gause also mentioned that a day of economic reckoning is due in about six months to a year. That's when the Treasury secretary will have exhausted his creative "borrowing" tricks and the government will finally be in default, unable to come up with any more money and hesitant to raise the six trillion dollar debt ceiling any further without risk of

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hyperinflation down the line, like that of the Weimar Republic in 1930's Germany. That government had a similar problem of paying debts and simply printed more and more money, rendering it so worthless that a loaf of bread could be had for a wheelbarrow full.

Inflation precedes collapse, Gause said, and our government will easier embrace that possibility than concede default. More U.S. dollars will be printed and our prices, like Weimar's, will steadily rise, along with the temperature of our economic water, to cook us slowly like frogs in a once comfortable pot. Revolution will ensue.

At that point, the politicians who engineered the collapse, those most recent at the helm of the sinking ship of state, will be sensibly ensconced in the relative paradise of less troublesome countries. And default will simply have been postponed in the country they'd deserted. Once the U.S. currency becomes unattractive for other nations and our debt in government bonds is no longer purchased, the American well will finally be dry. Default is inevitable.

Then the U.S. will be determined a debtor nation by the World Trade Organization head in the Hague, Netherlands, and reduced at last to the ignominy of economic stewardship by a foreign body. Sovereignty will be lost. A new currency will replace America's worthless notes. The One World Order will advance a step further with inclusion of this once largest creditor nation now the world's largest debtor.

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With the slow-cook option our politicians will prefer, we'll be steadily warmed to a boil as inflation becomes steadily hyper-, and real value assets grow ever more dear. Commodities will be king. Corn and wheat, sugar and coffee, soybeans and porkbellies.

When the (30-year) "long" bond shows a marked rise in yield (over 7%), or when gold hits $450 an ounce, that will be the harbinger of change ... the pivot of our peril. Precious metals will become more precious, the dearest commodity. When gold hit $800 an ounce in the early '80s, it was worth about three times its previous value. Silver went from $5 to $45 an ounce, or, nine times its value. Clearly, silver outperformed and will again.

Bonds, however, will be worthless in the collapse, along with certificates of deposit (CDs), money market funds, derivatives, or "debt" of any kind. Only those assets of actual value will survive, such as stocks, especially blue chip stalwarts, or specific foreign currencies like the Swiss Franc or the German Mark.

In default, with $3 trillion lost in bond issues like Social Security, Medicare and pension funds, depression will ensue and citizens will again be reduced, as in 1930, to little more than rats in a cage. Gone will be the grace of civility. Unlike 1930, however, where a modicum of dignity and restraint prevailed, this time there will be a savage decline of decency. For this event has been long presaged by the signs of its arrival:

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... generations of inferior education, discipline and family structure have produced the brittle shells of current citizens, hollow and hating, alone and angry, unable to compromise.

In hindsight, a new and different America, well-tempered by the fires of merciless change, will remember the politicians, architects of our misfortune, and will finally concede Santayana's epigram ... Those who do not remember the lessons of the past are doomed to repeat them.