The Real Crash

1. The Real Crash is Coming: Government's False Economy

The real crash is still coming.

False prosperity. The U.S. economy is built on a foundation of imaginary wealth, fueled by government intervention and debt. Like a house built on sand, it will collapse. The 2008 crisis was just a tremor, not the real earthquake. The government's response of bailouts and stimulus has only created new bubbles, delaying the inevitable and making the eventual crash even worse.

• Housing bubble replaced by a government bubble
• Too much consumption, too little production
• Debt-financed consumption is the disease

Government's role. The government, rather than being a solution, is the chief architect of the mess. It has created a system of debt-financed consumption, propped up by the Federal Reserve's manipulation of interest rates and the money supply. This has led to a cycle of bubbles, each one more dangerous than the last. The government's aversion to austerity has set us up for an even bigger crash.

Prepare for the inevitable. The real crash will come when the world loses faith in the dollar and U.S. credit. This will lead to a collapse of the dollar, skyrocketing unemployment, and a plummeting stock market. The only way to mitigate the damage is to prepare for the crash by adopting sound economic policies and making wise investment decisions.

2. The Federal Reserve: The Root of Economic Instability

The same bubble machine that fueled the last two boom-bust cycles—the Federal Reserve—is already back in high gear, and we must turn it off.

Central bank's role. The Federal Reserve, intended to be a stabilizing force, has become an inflation machine and a facilitator of big government. It manipulates interest rates, controls the money supply, and acts as the main lender to the U.S. government. This has created a cycle of bubbles and busts, leading to economic instability.

• Fed's original intent was to provide an "elastic money supply"
• Fed now fuels inflation and government spending
• Fed's actions have created a series of bubbles

History of manipulation. The Fed's manipulation of interest rates and the money supply has fueled the dot-com bubble, the housing bubble, and now the government bubble. Each time, the Fed has tried to avoid short-term pain, but has only made the long-term consequences worse. The Fed's actions have created a system of moral hazard, where banks and other financial institutions take excessive risks, knowing that the government will bail them out.

Need for reform. The Fed needs to stop fueling inflation and start sucking dollars back out of the economy. It also needs to let interest rates rise. This will end Washington's free ride and force Congress to slash spending, fix entitlements, and shrink government. The Fed must be reformed to prevent future economic crises.

3. Government "Job Creation" is a Myth: Free Markets are the Answer

Jobs, Jobs, Jobs: Government Can Improve Employment Only by Getting Out of the Way.

Government's failure. Government cannot create jobs, it can only shuffle them around the economy, usually with a loss of net employment and always with a loss of net prosperity for society. Government "job creation" programs, like the stimulus bill and green jobs initiatives, are often wasteful and ineffective. They create jobs that would not otherwise exist, but at the expense of other jobs that would be more productive.

• Solyndra example: government subsidies do not create jobs
• Government spending is not investment
• Government cannot create real jobs

Where jobs come from. Jobs come from the incentive to earn a profit and capital formation. The harder government makes it for employers to earn profits and the less we save to finance capital formation, the fewer jobs that will be created. Government policies that add to the cost of hiring an employee, such as payroll taxes and regulations, discourage employment.

Free market solutions. The best thing government can do to stimulate hiring is to get out of the way. This means ending bailouts, government spending, government borrowing, and Federal Reserve manipulation of interest rates and the dollar. It also means reducing government spending, offering real tax relief, and repealing regulations that create moral hazards.

4. Financial Industry Fix: Deregulation, Not More Rules

To fix our financial sector and make our economy more stable, we need something far more drastic: an actual free market.

Regulation's failure. The financial crisis of 2008 was not caused by a lack of regulation, but by too much government intervention. The New Deal's creation of the FDIC and other government-sponsored enterprises (GSEs) created moral hazard and encouraged excessive risk-taking.

• FDIC protects banks, not depositors
• Fannie Mae and Freddie Mac fueled the housing bubble
• Government bailouts encourage risky behavior

The Fed's role. The Federal Reserve's manipulation of interest rates and the money supply also contributed to the financial crisis. The Fed's actions created a system of moral hazard, where banks and other financial institutions took excessive risks, knowing that the government would bail them out.

Free market solutions. To fix the financial industry, we need to deregulate, not add more rules. This means abolishing the FDIC, ending government bailouts, and allowing market forces to regulate banks. We also need to end the Fed's manipulation of interest rates and the money supply.

5. Sound Money: The Gold Standard as Economic Discipline

Sound money is the only way to impose that discipline.

Fiat money's dangers. The current system of fiat money, where the Federal Reserve can endlessly inflate and fix interest rates, is a recipe for economic disaster. It allows government to spend without limit, creating bubbles and causing inflation.

• Fiat money is not backed by anything
• Government can create money out of thin air
• Fiat money leads to inflation and economic instability

Gold standard's benefits. Returning to a gold standard would impose discipline on government spending and prevent the Fed from manipulating the money supply. It would also provide a stable store of value, protecting savings from inflation.

• Gold is a tangible asset with intrinsic value
• Gold limits government's ability to inflate the currency
• Gold provides a stable store of value

Political implications. The gold standard is unpopular with politicians because it limits their power. It imposes restrictions on government spending and borrowing, which is why they prefer fiat money. However, sound money is essential for a healthy economy and a free society.

6. Tax Reform: End the Income Tax, Embrace Consumption

For starters, end the income tax.

Current tax system's flaws. The current tax system is too high, too intrusive, too economically distorting, too arbitrary, and too politically determined. It discourages work, promotes consumption, induces wasteful behavior, imposes huge compliance costs, invades privacy, and tramples on individual rights.

• Income tax discourages work and savings
• Tax code is complex and costly to comply with
• Tax code is used to steer behavior

Indirect taxes. The best way to reform the tax system is to abolish the income tax and replace it with a consumption tax, such as a national sales tax or tariffs. Indirect taxes are less intrusive, more self-limiting, and less harmful to the economy.

• Consumption taxes are less harmful than income taxes
• Tariffs can raise revenue and encourage domestic production
• User fees can fund government services

End the income tax. The income tax is the most destructive tax, and it should be abolished. It is a penalty for working, and it discourages savings and investment. It also creates a system of complexity and compliance costs that are a drag on the economy.

7. Entitlements Must End: Social Security and Medicare's Unsustainable Path

We need to wind down entitlements, eliminate many government functions, and stop playing with the money supply and interest rates.

Entitlements' cost. Social Security and Medicare are the real drivers of our long-term debt crisis. They are unsustainable programs that are set to consume an ever-increasing portion of the federal budget.

• Social Security and Medicare are not self-funding
• Entitlements are a huge portion of the federal budget
• Entitlement spending is set to explode

Social Security's flaws. Social Security is not a savings account or an insurance program, but a Ponzi scheme that relies on new workers to pay for the benefits of current retirees. It is also a transfer of wealth from the young and poor to the old and rich.

• Social Security is not a savings account
• Social Security is not an insurance program
• Social Security is a Ponzi scheme

Medicare's flaws. Medicare is also unsustainable, and its costs are set to explode. It is a third-party payer system that encourages overconsumption and drives up health-care costs.

• Medicare is a third-party payer system
• Medicare encourages overconsumption
• Medicare is unsustainable

Need for reform. The only way to fix these programs is to end them. This means winding down entitlements, eliminating many government functions, and stopping the government from playing with the money supply and interest rates.

8. Higher Education: A Bubble Ready to Burst

Time to Drop out of College?

College costs are rising. College tuition is skyrocketing, but the quality of education is not improving. The value of a college degree is also falling, as more and more people go to college.

• College costs have increased tenfold since 1978
• College quality is not improving
• College degrees are becoming less valuable

Subsidized loans. Subsidized student loans are the main reason for the rising cost of college. They create a system of bottomless demand, where colleges can raise tuition without fear of losing students.

• Student loans create bottomless demand
• Student loans drive up tuition costs
• Student loans create a debt burden for graduates

Alternatives to college. Not everyone is college material, and many people would be better off learning a trade or starting a business. We need to end the cultural bias that pushes everyone to go to college.

• Not everyone is college material
• College is not the only path to success
• Apprenticeships and vocational training are valuable alternatives

Free market solutions. The best way to fix higher education is to end all subsidies for college tuition. This will force colleges to compete on price and quality, and it will allow students to make more informed decisions about their education.

9. Health Care: Market Solutions, Not Government Control

Repealing ObamaCare Is Just the Beginning.

Government's role. Government intervention in health care has created a system of third-party payers, where people are not price-sensitive and overconsume health care. This has led to skyrocketing costs and a dysfunctional system.

• Third-party payers reduce price sensitivity
• Government mandates drive up costs
• Government regulations limit consumer choice

ObamaCare's flaws. ObamaCare is a step in the wrong direction. It imposes more mandates on the insurance industry, expands government control, and does nothing to address the underlying problems of the health-care system.

• ObamaCare expands government control
• ObamaCare does not address the root causes of high costs
• ObamaCare is unsustainable

Free market solutions. To fix health care, we need to move toward a free market system. This means ending the tax exclusion for employer-based health insurance, allowing people to buy insurance across state lines, and reforming malpractice laws. We also need to end government mandates and subsidies that distort the market.

10. America is Bankrupt: Restructure Debt, Shrink Government

America Is Bankrupt: Time to Admit It.

Debt is unsustainable. The national debt is so large that it is impossible to repay. The government is borrowing money to pay for its debts, and it is relying on artificially low interest rates to keep the system afloat.

• National debt is $15 trillion and growing
• Interest payments are a huge burden
• Government is borrowing to pay its debts

Bankruptcy is inevitable. The U.S. government is bankrupt, and it needs to admit it. The only way to avoid a complete collapse is to restructure the national debt and shrink government.

• Default is inevitable
• Restructuring is better than hyperinflation
• Government must shrink

Restructuring and liquidation. A bankruptcy would allow the U.S. government to sell off assets, shut down unnecessary agencies, and renegotiate its debts. This would be a painful process, but it is necessary to restore fiscal sanity.

• Sell off federal assets
• End unnecessary government programs
• Renegotiate debts

11. Investing for the Real Crash: Prepare for the Inevitable

You need to look to overseas assets and invest with the knowledge that the U.S. of the future will not be anything close to the economic powerhouse it was in the past.

Shifting purchasing power. The U.S. is no longer the center of the economic world. Purchasing power is shifting to developing nations, particularly in Asia.

• U.S. is losing its economic dominance
• Asia is becoming the new economic powerhouse
• Purchasing power is shifting to developing nations

Investment strategy. To prepare for the real crash, you need to diversify your portfolio and invest in assets that will benefit from these trends. This means investing in foreign stocks, foreign currencies, and gold.

• Invest in foreign stocks and bonds
• Hold foreign currencies
• Buy physical gold and gold mining stocks

Avoid conventional wisdom. Conventional wisdom about investing doesn't work anymore. The dollar is not safe, and U.S. Treasuries are not a safe haven. You need to look to overseas assets and invest with the knowledge that the U.S. of the future will not be anything close to the economic powerhouse it was in the past.

Last updated: January 15, 2025