Throughout the past several months, Barrack Obama has emerged, so far, as the Democratic hopeful in the 2008 presidential campaign (although Hillary Clinton is not too far behind). Obama's followers comprise minorities, the underprivileged and young voters. They flock in numbers to hear his speeches that hyperbolize bipartisanship and compromise. Jaded by Congressional gridlock, they hunger for a president that will open the floodgates and get Congress flowing again.
However, many Obama supporters are naive of the fact that throughout its history, Congress is notorious for not being an effective problem solver. In fact, they are more problem creators than problem solvers. It is safe to say that every major problem Congress has tackled in the past has resulted in more problems.
For instance, when Congress attempted to rescue the railroads during the later part of the 20th century, they almost drove the entire industry into bankruptcy. And they would have had it not been for $2.00 plus price of gasoline/$2.50 plus price of diesel and the massive amount of foreign imports pouring into the U.S. Therefore, it was not an act of Congress that gave the railroads a new lease on life. Instead, it was the emergence of a profit motive-the major transportation of foreign goods to U.S. cities.
Another fine example is Congress' intervention in the U.S. educational system in the late 1950s. At the time, our educational system was among the best in the world. However, after more than 50 years of Congressional meddling, the U.S. educational system ranks well below those of most other major industrial nations. In addition, there is the U.S. health care system. Our Democratic hopefuls wish to implement a universal health care system, thus making health care available to everyone. Today, both Medicare and Social Security are on the verge of collapse. Meanwhile, the programs these candidates plan to impose will cost hundreds of billions of dollars. Where will the money come from?
Such a plan will only work (financially) at the expense of either quality health care services or the taxpayer, if not both. Universal health care plan will either result in a reduction in quality of care and/or major tax increases. Why are politicians so adamant about passing a universal health care plan? Because of the 12 million to 18 million illegal aliens currently working and residing in the U.S. Illegal immigration has been suckling off our health care system for decades, nearly driving our health care system into the ground.
Let us not forget Congress' involvement in the airline industry. The airlines were once the marvel of the free and modern world. Then Congress conveniently intervened in an attempt to protect us from terrorists, hijackers, and little old ladies in wheel chairs. Today, what was once the Rolls Royce of long distance travel is now compared to riding a Greyhound bus.
There are several other examples of fruitless Congressional problem solving. One that comes to mind is that involving veteran's hospitals. They were established after World War I to care for and rehabilitate wounded soldiers. Often, this care required years, if not decades, of treatment. Nonetheless, Congressional mismanagement eventually rendered these hospitals practically useless and harbors of illness and disease.
Perhaps one of the greatest victims of Congressional malfeasance is the Bretton Woods Agreements. During World War II, 730 delegates from 44 Allied nations met at Bretton Woods, New Hampshire, to set up a system of rules, institutions, and procedures to regulate the international monetary system. It was here that the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) were established. These organizations became operational in 1946 after a sufficient number of countries had ratified the agreement.
According to Wikipedia, the chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value-plus or minus one percent-in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States' suspension of convertibility from dollars to gold.
To comply with the Agreements, the United States used our nation's gold reserves to back the value of the dollar, a dollar that would eventually become the world's reserve and trading currency. Therefore, as the dollar dropped in value, foreign nations and financial institutions could demand gold in exchange for the devaluing dollar. In less than 20 years, the treaty cost the U.S. two-thirds of its gold reserves. Prior to the time the treaty was passed, the U.S. owned about two-thirds of all the gold mined in the world, most of which was accumulated during WWII. So, what went wrong?
Congress, in its infinite wisdom, neglected to provide a yearly inflation provision for dollar value. Congress spent more than it taxed every year, paving the road to inflation, thus dollar devaluation. Consequently, 20 years of accumulated inflation devalued the dollar to the point where it allowed foreign nations and institutions to exchange their dollars for gold at a discounted rate of between 10 to 20 percent.
Congress, despite their history as ineffective regulators, may be called upon again to address the major problems facing our nation today, depending on who is elected our next president. These problems include the subprime loan crisis, illegal immigration, dollar value, free trade, health care, the economy and, of course, the war in Iraq. In the next eight years, Congress could very well drive our nation into bankruptcy. This is why older voters fear Congressional change. Change for the sake of change is not an answer to our problems.
I am seldom political in my writings. My focus has always been economic-follow the money. However, these are unique times and, thus the need to spread my message is more critical. Free enterprise and capitalist values are what made our country the super power it is today, even though this reputation is quickly diminishing because Congressional meddling is slowly, but surely, reducing this country into a second world nation.
What can we, as investors, do to protect our nest eggs and shelter our investments from the devastation of a devaluing dollar? In my April newsletter, I will discuss an investment strategy that allows investors to invest in the currency of their choice. It is one of the safest and most profitable investments in the world! STAY TUNED!
Kenneth Coleman
