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| http://www.marketskeptics.com/2009/06/chairmen-of-federal-reserve.html |
Monetary policy and the gold standard can be confusing topics, but we must understand them if we are going to put a stop to government's wealth destroying shenanigans
I've dipped my toes into Austrian School economics and f oundthe water a pleasant intellectual temperature but very, very deep. I've read Ron Paul, I've read Murray Rothbard, and I still have at best a only very fundamental understanding of money and banking.
Why the Opposition to the Gold Standard?
Government meddling has destroyed the value of our currency, which in turn robs us of our savings and destroys our buying power. Nathan Lewis has a gift for breaking down complex issues like the gold standard. First, he explains why money manipulation is attractive to the mercantilists (those who oppose a gold standard or fixed currency.)
Mercantilists don't see currency instability and monetary fiddling as problems; they see them as solutions. A gold standard system prevents them from implementing this apparent solution, which is why they sometimes refer to the "golden fetters" that used to hold them back.A standard pro-Federal Reserve argument says that the Fed expands and contracts the money supply to keep the economy on an even keel. We know how well that has worked over the past 100 years. Lewis explains the flaw in this argument:
In the short term, a currency devaluation, or an easy-money policy, can create what appears to be an improvement in economic conditions. We saw this with QE1 in March 2009 and QE2 in late 2010. In the longer term, however, this sort of strategy tends to cause stagnation and economic decline. The notion that a country can become wealthy just by fiddling with its currency is patently ridiculous. The most successful countries worldwide have always been those with the most stable currencies.Such manipulations provide the illusion of wealth, but that's all it is, an illusion. My house is worth more now than it was 10 years ago, but the dollars that it is priced in are worth so much less, it's probably a wash. Again, Lewis explains how the Dow Jones Industrial Average is valued higher now than in 2000. However...
The Dow Jones industrial average was worth about 43 ounces of gold at its peak in 2000. Today, it is worth about 8.5 ounces, a decline of about 80%!So, like my house or the DJIA, it all looks good on paper, but it's just paper! You can add zeros on to the price of something, but it will not increase or create real wealth.
A similar story could be told by per-capita GDP, in nominal and gold terms. Today, after 40 years of floating currencies--since 1971--U.S. per-capita GDP, as measured in ounces of gold, is back to levels first seen in the early 1950s. Forty years of easy-money currency fiddling has caused stagnation and decline, just as the Classical economists said it would.This explains why when government economists point to statistics to say how much better off we are, we really don't feel any better off. It's all accounting tricks done with currency manipulation. We went off the gold standard in stages, with Nixon dealing the final blow:
The floating currency system appeared in 1971 for this exact reason. Richard Nixon wanted to boost the economy with easy-money before the 1972 election. Did it work? Officially, GDP rose 5.3% in 1972. Nixon was re-elected. This kicked off a decade of inflation and economic decline.The Reagan recovery was real because it was driven by a strong dollar. We all really did get richer because our money was not losing value in the 80's. Alas, George W. Bush went back to the old government tricks, with President Obama kicking the printing presses into hyperdrive. Here we are today, richer on paper, poorer in reality. Thank the Federal Reserve.
Nathan Lewis - If the Gold Standard is so Great...
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