“Like a good neighbor, State Farm is there,” is the trademarked jingle originally penned by Barry Manilow back in 1971, the same year Richard Nixon closed the gold window. Some neighbor! He sold the farm.
Suddenly now everyone wants...everyone else...to be a good neighbor. The Wall Street Journal recently reported: “The Group of Seven leading economies last Tuesday attempted to head off a potentially destabilizing round of currency devaluations, issuing a statement that reaffirmed their commitment to let market forces determine exchange rates, and saying central bank policy will be focused solely on domestic objectives.”
The Journal’s Sudeep Reddy noted: “The question of currency devaluations is an awkward one for industrialized nations, many of which have embarked on monetary policies designed to boost their economies that have the side effect of lessening the value of their currencies. The U.S. Federal Reserve’s bond-buying policy has previously sparked world-wide concern given its impact on the dollar.”
Writing in the Financial Times, Komal Sri-Kumar, president of Sri-Kumar Global Strategies, wrote how we got to this strange place in economic policy “The pursuit of an exchange rate level as a target in itself has...resulted in misplaced priorities. The US Treasury and Senate have spent the past 15 years criticising Chinese authorities for not permitting a bigger appreciation of the yuan. This was time wasted. Foreign exports to China did gain competitiveness in recent years, but due to increased Chinese wage costs rather than from a stronger yuan.” He added: “Instead of focusing on the yuan’s exchange rate with the dollar, foreign negotiators should have pushed China to open its markets to foreign competition, and to reduce restrictions on foreign capital inflows. Trying to force Chinese monetary authorities to move the exchange rate faster shifted the focus of western governments from the need for structural reforms in the Chinese economy.
Dr. Sri-Kumar observed: “As central banks in the US, Europe, Japan and China wrestle with recession or slower growth, they will find that competitive monetary easing measures, and uncertainty about exchange rates, hold back rather than promote recovery. Providing the security that comes from fixed exchange rates, and pursuing policies compatible with those rates, would be more effective in reviving growth.”
So there they have it: The same policies that have been touted as the salvation of the developed world are coming back to haunt efforts to stimulate growth.
So too that day on August 15, 1971 when Richard Nixon cut the last link between the dollar and its monetary base. It’s like Barry Manilow sang in “Every Single Day.”
Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 40 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement — the gold exchange standard — on August 15, 1971.
Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.
The new Federal Reserve chairman, Janet Yellen, gave a policy speech today at Chicago, where, in a startling gesture, she mentioned three working individuals by name — Jermaine Brownlee, Vicki Lira, and Doreen Poole. They lost their jobs the Great Recession and have been struggling ever since. It was a refreshing, even affecting demarche by Mrs. Yellen, who has made a return to full employment a public priority. She underscored her sincerity by telephoning Mr. Brownlee and Ms. Lira and Ms. Poole before delivering her speech.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
Who Was Jacques Rueff?
... Trained in science and mathematics at the Ecole Polytechnique, Rueff devoted his first theoretical work to showing that the same scientific method applies to “moral” or “social” sciences like economics as to the physical sciences (Des Sciences Physiques aux Sciences Morales, 1922). In both cases, he pointed out, individual acts can be “indeterminate,” but the pattern of large numbers of individual acts can be predicted as a matter of probability. And so in economics no less than physics, as he later wrote, “A scientific theory is considered correct only if it makes forecasting possible.”
"Forerunners of man lived upon the planet several million years ago. But the unique, modern, social order of man – civilization – emerged only four to five thousand years ago. Historical and archaeological evidence suggests that the institution of money evolved coterminously with civilization. From the standpoint of the 100,000-year history of Homo sapiens, civilization and money are but young and fragile reeds. Today their very existence is threatened by financial disorder."
There is a lot of bad behavior in the global political and monetary world. Much of it comes in countries that should know better. Recep Tayyip Erdogan’s Justice and Development Party (AKP) easily won municipal electons in Turkey but the party’s candidates won far short of the nation’s votes.
Hostility toward gold has a long pedigree.
19th century depiction of Pliny the Elder courtesy of the Library of Congress
Gaius Plinius Secundus, commonly known as Pliny the Elder, in his The Natural History, Book 33, section 3, writes:
Would that gold could have been banished for ever from the earth, accursed by...