Barack Obama is an intelligent man, if finishing first in your class at Harvard Law School is any indication. And he is assembling an impressive group of Keynsian economists to address the current economic crisis.

As intelligent as Obama is, this approach is doomed to fail before it even starts. At the heart of the issue is the fundamental misunderstanding–deliberate or not–of the difference between “money” and “wealth.”

Clearly, Obama and his team are ready to unleash mountains of free money and easy credit–all created out of thin air, at the whim of those in power–as a way to “stimulate” the economy. Today, the number seven trillion was floated. No one has any clear idea how this newly-printed funny money will be used. After all, the first, seven hundred billion dollar bailout was supposed to be used to buy up so-called “toxic assets.” None of the money, so far, has been used for that purpose.

Basically, the federal government now believes it can, like King Canute, stand on the monetary seashore and order the tide not to come in. But the tide will come in, like it or not.

Often, economists use the analogy of easy credit to that of a drug addict. With an injection of easy credit and newly-printed paper money, you get a euphoric effect, much like a drug addict on heroin. But eventually, the crash has to come. Either that, or you have to keep upping the dosage until you kill the patient.

Folks, we’re about to kill the patient.

The real joke of the whole matter is that the US demands that its currency, the dollar, remain as the world’s monetary standard. Sorry, nitwit politicians, but other countries are not going to stand by and watch their dollar holdings depreciated to near zero when you print your seven trillion dollars of “bailout” money. They will start dumping their dollars. When that happens, we will really, really be in trouble, because the dollar will sink so low in value that imported goods will become exorbitantly expensive. Look for those ten-dollar, name brand jeans at Walmart to suddenly go up to fifty dollars, then sixty, then past a hundred.

Is there any way out of this mess, without causing pain?

The answer is no. Inflationary credit policies cause businesses to over-invest, or mal-invest, thinking the consumer will be there, ready to fork over cash for whatever they offer. Those malinvestments have to be liquidated if the economy is to recover. In this sense, “liquidation” means a short, sharp depression, lasting perhaps a year or two. This will happen, ONLY if the Federal Reserve stops increasing the money supply.

Won’t happen, folks. It’s too politically poisonous. Unless Obama is a moral giant. He’s very smart, but I don’t think he’s a moral giant.

Money, the medium of exchange, is not the same as wealth. Wealth is stuff like cars, ovens, computers. Money is just the medium of exchange used to simplify trades. Governments discovered, long ago, that by monkeying with the money supply, they could increase their power, without having to raise taxes. Then, they could blame the resulting economic chaos on anything but themselves: greedy businessmen, stock speculators, you name it.

The only long-term solution is to drastically reduce the power of government by getting the government out of the business of printing money. No entity can be given the power to create money at will, and not abuse the privilege. The temptation to justify debasement of money in the name of some higher good–a war, helping the poor, socialized medicine–is simply too great to resist.

With a free market in money, gold and silver coins–which are almost impossible to counterfeit and inflate–would become the standard of exchange. This is the goal we have to aim for, if we are to avoid the cycle of boom and bust, inflation and depression, in the future.

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