A friend tells me that the soft-money advocates will always argue something along the lines of: “What if the financial crisis of 2008 had happened and we were on a gold standard?” They imply that a gold standard system would have made the crisis much worse.
Well, what if?
All of these kinds of soft-money arguments tend to boil down to the notion of devaluing the currency during a time of crisis. The actual strategy could be an overt currency devaluation, or it might be related to very low interest rates, or printing an excessive amount of money to deal with one problem or another, leading to a decline in currency value. A gold standard system would prevent a currency from declining in value; and thus, any excessive money-printing of this sort.
Let’s take, for purposes of example, a period from the end of June 2008 to the end of June 2009. The U.S. stock market had not yet begun to fall rapidly in June of ’08; indeed, the S&P 500 finished August at about the same level as it ended June. By the end of June 2009, the S&P500 was already recovering rapidly from its low in March 2009.
The value of the dollar was $930.25 per ounce of gold at the end of June 2008. At the end of June 2009, it was $981.75 per ounce. Thus, on a point-to-point basis, the dollar was not devalued during this crisis period. Indeed, if the U.S. had been on a gold standard system at the time, let’s say at a parity of $1000/oz., the outcome would have been about the same on a point-to-point basis. The value of the dollar would have been $1000/oz. at the end of June 2008, and the same $1000/oz. at the end of June 2009.
The dollar did not remain at an even value throughout the crisis period. Nor was it devalued, as the Keynesians like to imply. No, the dollar went up! In October of 2008, the dollar hit a high of $712.50/oz. (London PM fix basis). It then fell back. This spike in dollar value was reflected also in exchange rates with other currencies. The Federal Reserve’s broad trade-weighted dollar index went from 95.76 at the end of June 2008 to a high of 112.49 in November 2008, before falling back to 105.35 at the end ofJune 2009.
The basic reason for the financial crisis of 2008 was bank insolvency. Many banks had made too many loans to borrowers who could not pay them back. The prospect of widespread and chaotic bank default loomed. This spike in dollar value, in the middle of the crisis, just added a new problem to an already problematic scenario.
George Gilder, whose new book publishes today, is one of the original pillars of Supply Side economics. As stated by Discovery Institute, which he co-founded, “Mr. Gilder pioneered the formulation of supply-side economics when he served as Chairman of the Lehrman Institute’s Economic Roundtable, as Program Director for the Manhattan Institute….”
He was the living writer most quoted by President Reagan. And he is back with his most brilliant work yet — one of potentially explosive importance if taken to heart by our political and policy thought leaders. It is a radical guide, with surprising insights on almost every page, to the creation of a new era of vibrant prosperity.
As reviewer Paul Brodsky, a professional investor in New York City, perceptively notes,
"Lewis Lehrman is one of a very small group of contemporary gold advocates able to successfully bridge the gap separating practical conservative intellectualism from fleeting, half-baked idealism. His CV lists great success across many fields including education (degrees and teaching fellowships from Yale and Harvard); industry (past president of Rite Aid); politics (narrow loser to Mario Cuomo in the 1982 New York governor’s race); finance, (past Morgan Stanley managing director); private sector entrepreneur (founder, L. E. Lehrman & Company); public sector advocate (founder, Lehrman Institute); historian (author, Lincoln at Peoria: The Turning Point); and recognized philanthropist (awarded the National Humanities Medal by George W. Bush in an Oval Office ceremony). ... Only someone erudite and elegant in demeanor could hope to pull it off . In an irreconcilably over-leveraged world where irritated bond vigilantes question economic sustainability and angry Tea Partiers protest the immorality of it all, Lehrman’s views are considered and his convictions carry weight. He brings gravitas to his cause, and he does so from within as a member of the club."
Before the Fed: JP Morgan Summons the Bank Presidents
"Finally, on the night of Sunday, November 2, Morgan summoned the presidents of the major New York banks to his new library, at the corner of Madison Avenue and Thirty-sixth Street, an Italian Renaissance-style palace he had built next door to his house to showcase his collection of rare books, manuscripts, and other artwork. Its marble floors, frescoed ceilings, walls lined with tapestries and triple-tiered bookcases of Circasian walnut, crammed full of rare Bibles and illuminated medieval manuscripts, made it an incongruous setting for a meeting of the banking establishment. Once the moneymen had gathered, Morgan had the great ornamental bronze doors to the library locked and refused to let anyone leave until all had collectively agreed to commit a further $25 million to the rescue fund."
— Liaquat Ahamed, Lords of Finance (Penguin Books, 2009, p. 54)
Lately we have been engulfed by headlines reporting financial turmoil on every continent, in almost every nation, large and small. The commissars of central planning who so marred the history of the 20th century have been replaced by central banks in the 21st. In Cyprus, the new leadership now dares to confiscate citizens’ wealth with a one-time tax of up to 60 percent on bank deposits above 100,000 euros. Self-interested prime ministers blame continental monetary policies for instigating the currency wars that they themselves surreptitiously carry on.
Constitution.org provides an extensive and thoughtful Memorandum of Law by Larry Becraft, Esq., of Huntsville, Alabama, on Article I, Section 10, clause 1 of the US Constitution.
Sir William Blackstone courtesy of Wikipedia
One of many interesting matters the Memorandum treats is Blackstone's Commentaries, a book that was a fixture in the...
The value of the yuan has been slowly rising. The value of the Japanese yen has been sharply falling. Abenomics is attempting to reflate the Japanese economic – slowly, slowly. “Japan is back!” Prime Minister Shinzo Abe tells the Japanese.
Coming back isn’t easy. The Financial Times’ Jonathan Soble has noted...