U.S. Elites Begin To Confront The Paper Dollar

CBO has now predicted more than 8% unemployment until 2014 as Americans must now face a struggling dollar. The author of the article has claimed that we should not be surprised to see a currency collapse here in the US and we should invest our money into gold while we still can.

FORBES

There is nowhere left to hide. America’s governing elites begin to internalize the magnitude of their failure to generate jobs. CBO now predicts worse than 8% unemployment until 2014. America begins to engage, seriously, with the implications of the faltering dollar and reconsider the appeal of the gold standard. From The New Yorker to The National Interest to The Washington Monthly to The Nixon Foundation, thoughts turn to gold.

The New Yorker’s August 29 Market Watch, by Talk of the Town deputy editor Nick Paumgarten, celebrated the 40th anniversary of the abandonment of gold and the experiment begun with the paper dollar standard. The tone? “Don’t let the door hit you, Paper Dollar, Jr., on the way out.”

Forty, as anyone who has turned it can attest, is, at best, an occasion for ambivalence and, at worst, a bracing peek over the top of the hill. For its four-decade birthday, last week, Paper Dollar, Jr., was confettied with grim statistics and hooted anew by goldbugs and critics of the Fed. The slide show of P.D., Jr.,’s life, to be sure, features some ugly bits — inflation, recession, rising unemployment, harmful speculations, ballooning debt. The regime of which the dollar is the centerpiece, in its role as the world’s reserve currency, is now teetering. It is a shadow of itself. Stooped and arthritic, it smells of mothballs and can no longer afford its beloved Swiss chocolates. It keeps forgetting our names and getting lost on the way home. Still, the average life expectancy for a fiat currency is twenty-seven years; so, by that measure, the greenback has had a good run.

The “average life expectancy for a fiat currency is twenty-seven years; so, by that measure, the greenback has had a good run.” Bye-bye, fiat dollar. Hello, gold?

This may be less surprising than it appears. In 2000 The New Yorker’s erudite John Cassidy praised Hayek as the economist of the 20th Century, coupled with words of praise for Hayek’s mentor, the pro-gold von Mises. The New Yorker: decennial beacon of sanity?

Meanwhile, at The National Interest‘s September-October issue, Barry Eichengreen provides a lengthy, thoughtful, and perplexed, “A Critique of Pure Gold.” Eichengreen is one of the most respected students of the status of the dollar, author of the Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, as well, of course, of Golden Fetters: The Gold Standard and the Great Depression. He observes:

GOLD IS back, what with libertarians the country over looking to force the government out of the business of monetary-policy making. How? Well, by bringing back the gold standard of course.

There’s no better place to see just how real this oddball proposal is than in Iowa, with its caucuses just a few months away. In June, prospective voters were entertained not just by the candidates but also by the spectacle of an eighteen-day, multicity bus tour cosponsored by the Iowa Tea Party and American Principles in Action, or APIA. (The bus was actually a giant RV with a banner on the side featuring images of the U.S. Constitution, the American flag and the web address www.teapartybustour.com.) APIA is the nonprofit 501(c)(4) arm of the American Principles Project, the parent group of Gold Standard 2012. ….

Eichengreen, although not a gold advocate, provides an honest and nuanced assessment of the enhanced credibility of the systemic critique provided by free market advocates:

[The financial crisis's] very occurrence seemingly validated the arguments of those like [Rep. Ron] Paul who had long insisted that the economic superstructure was, as a result of government interference and fiat money, inherently unstable. Chicken Little becomes an oracle on those rare occasions when the sky actually does fall.

More than that, the period leading up to the crisis displayed a number of specific characteristics associated with the Austrian theory of the business cycle. … But the longer the asset-price inflation in question is allowed to run, the more likely it becomes that the stock of sound investment projects is depleted and that significant amounts of finance come to be allocated in unsound ways. At some point, inevitably, those unsound investments are revealed as such. Euphoria then gives way to panic. Leveraging gives way to deleveraging. The entire financial edifice comes crashing down.

This schema bears more than a passing resemblance to the events of the last decade.

He inserts an agnostic coda. But his attention is transfixed:

But the Austrians then go on — and this is where they and other economists part company — to argue that the best and, ultimately, only feasible response to this destabilizing cycle is inaction.

This observation deserves to be addressed more thoroughly than is permissible here. Coming up!

Meanwhile, the tiny but influential Washington Monthly devotes not one but two August blogs to an incredulous gaze at the re-emergence of the gold standard.

Steve Benen:

Just so we’re clear, in the 21st century, we have a major-party candidate for the presidency being asked in a nationally televised debate why he doesn’t support the gold standard.

Worse, when Santorum conceded that he doesn’t support the gold standard, he heard quite a few boos from the audience.

Is it me, or is the fact that this exchange happened at all rather surreal?

Michael O’Hare

Among the many amazing things the gods of irony and absurdity have showered upon us in the last decade or so, I have to score serious discussion of a gold standard for money very high.

Mr. Benen, it’s not surreal. Yes, it’s you. Professor O’Hare, your scoring is weird. In the “amazing things the gods of irony and absurdity have showered upon us in the last decade or so” surely must be counted the rallying of haute progressive elites behind the Nixon legacy. From the Richard Nixon Foundation itself, “The New Nixon Blog,” Robert Nedelkoff observes:

Monday marked the fortieth anniversary of the speech in which RN announced the end of the Bretton Woods system and the 90-day wage-prize freeze to a startled nation, and all through this week dozens of articles and hundreds of blogposts have pondered the significance of the decision to untether the dollar from US gold reserves.

A good many of the articles, especially in conservative sites and newspapers, have characterized RN’s actions of that month as an unmitigated mistake. Typical of these are two articles appearing in the Wall Street Journal. One is by Lewis Lehrman …

In his article, Lehrman mostly just recounts the meetings that led up to RN’s decision to abandon Bretton Woods, and seems to take it for granted that readers share his view that the action was harmful to the American economy. ….

The Nixon Foundation, of course, would rather exonerate the Old Man:

a more balanced examination of the “Nixon Shock” can be found in the blog of the Toronto Globe and Mail, by Kevin Carmichael. … Carmichael notes that some of the events that resulted in the weakening of American currency and economic performance in this decade could not have been anticipated in 1971….

Welcome to the cadre of Nixon Rehabiliators, Benen and O’Hare (and, yes, you too, Paul Krugman). The Nixon Foundation’s exoneration is undermined by one simple fact. “Could not have been anticipated” … except by those, of course, who anticipated them. These include De Gaulle’s counselor Jacques Rueff and Rueff’s protege Lewis Lehrman (with whose Institute this writer is professionally associated), who it singled out to take issue with, who was writing, as early as 1974: “the historian shows the unassailable link of depreciating money and a doomed civilization.”

8%+ unemployment returns dollar policy to the fore. Strong arguments have been propounded that joblessness is rooted in the unstable Nixon dollar. The best documented way of creating jobs is by restoring the dollar’s convertibility into gold. “The average life expectancy for a fiat currency is 27 years.” Onward to gold.

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