I am a history buff, especially when it comes to our economic history. Well, one thing I have learned is the past is never dead, and there are always those who believe “yesterday” was somehow better than “today.” Nostalgia, even among educated economists, conveniently represses that which does not favor the halcyon days of long ago. As well, suggesting that our country move toward the “way things used to be” suggests ignorance of how the world has changed and how the sheer magnitude of that change makes it impossible to go back to “the good old days.”
The international monetary system set up at Bretton Woods in 1944 is on the verge of breaking down. It could still be saved by heroic measures, especially if these were taken in the United States. They would include an immediate slash in projected government expenditures, an immediate balancing of the budget, and a halt in any further increase in the stock of money.
Henry Hazlitt wrote the above in a Los Angeles Times editorial in March of 1969. He was then predicting that the U.S. would move off the gold standard, which would cause an inflationary collapse of the global economy. He was right about moving off the gold standard, but as far as the inflationary collapse, well, we are still here and inflation is not the big concern; deflation is the boogey man today. Hey, but who cares about facts. Let’s just go back to a time when a dollar had “true” monetary value, meaning physical gold backed it up.
Earlier this week Thomas Hoenig, president of the Kansas City Federal Reserve, went out of his way to call the gold standard a “very legitimate monetary system.” In November, World Bank President Robert Zoellick and Indiana Republican Congressman Mike Pence both called for a serious look at using gold as the centerpiece of international monetary reform. The fact that a Fed leader, the highest-ranking American official in international economics, and a potential presidential candidate are talking up the gold standard indicates that floating money is running out of political cover, and that the obstacles to gold replacing it are narrowing.
Hmmm … let’s see now. Today, the largest and most liquid market on the planet is forex. Countries, international banks, multinational corporations, hedge funds, money managers of all stripes, and more than a few folks trade forex. The lynchpin of the forex market is the U.S. dollar. Imagine for just one moment if the U.S. dollar were static. Imagine little if any speculation about the dollar movement related to other currencies. Imagine, for a moment, that physical gold is the reserve currency of a global economy that runs on the instantaneous transmission of information, a world that now sees physicals assets (of all kinds) as ethereal markers, never touched symbols of wealth, digital wealth, if you will. Yes, Imagine that …
Folks, in the 1930s, we were on the gold standard. Now that fact kept us from economic collapse, inflationary spirals, and massive debt, right? Folks, these are serious times and we need serious people to get our country and the world back on track. So, no more stupid talk; just get on with making it right within the context of the real world.
Trade in the day; invest in your life …
