James Turk on Socialism

James Turk has an excellent blog on Kitco. Turk suggests that the coming government debt crisis across Europe will trigger a reassessment of the current pervasive socialism. He extensively quotes Hayek and makes the argument that government uses wars and emergencies to expand state power. The extended state power continues during peacetime to expand the welfare state. The welfare state become subject to special interests and expands relentlessly. Presumably, in a democracy the public is not smart enough to understand the effects of the expansion, namely, declining standards of living and opportunities to make a living. As the state expands wealth declines. I would also add that income inequality increases because of government policy--specifically the Federal Reserve Bank's handling of monetary expansion. Turk argues that with the coming bankruptcies of many countries, the destruction that socialism wreaks is laid bare. Turk writes:

>"The ideological bankruptcy is neatly captured by British author and advocate for individual rights, Cecil Palmer: 'Socialism is workable only in heaven where it isn’t needed, and in hell where they’ve got it'. And government insolvency is explained by famed economist Frederic Bastiat, who made this levelheaded observation nearly 150 years ago about the nascent modern socialism then emerging. 'The State is that great fiction by which everyone tries to live at the expense of everyone else.' More recently, Margaret Thatcher, being a sensible politician, put it pragmatically: 'The problem with socialism is that you eventually run out of other people's money.'

>"Take Greece for example. This past week yields on its 10-year bonds surged in the wake of downgrades by the bond rating agencies, which finally recognized that Greece does not have the financial resources needed to repay its debts, which now stand near junk levels. Not far behind are Latvia, Spain, Ireland, the United Kingdom and almost every other country in Europe, even though they may still flog paper rated as “investment grade.” The reality is that the rating agencies just have not yet come to grips with the breadth and depth of widespread government insolvency, or have willingly turned a blind-eye to it. And don’t forget Iceland which of course has already collapsed."

Might socialism die with a bang? I doubt it. Americans and Europeans have adopted the mentality of slaves. 58% of the American population depends on some level of government for its living, according to Turk's numbers. And we wonder why income inequality is on the rise and the real hourly wage hasn't risen in 40 years? The blame must rest in part with academic economists, whose policies have been as short sighted as their econometric regression models.

What would a major international debt crisis do to the stock market? To gold? Intuitively I would think stock market down, gold up. But last year it was both down. It is extremely difficult to predict the markets because Wall Street has a strong pro-dollar mythology that will only quit when the US dollar goes the way of the Continental in the post Revolutionary War period.