Ed,
At 17:15 28/05/2010 -0400, you wrote:
I'm sure sound money, and soundly managed money, can be achieved without
reverting to the gold standard
It doesn't have to be gold. But it has to be something that is regarded of
value and of which its annual production is inherently incapable of
fluctuating much. It can be something of psychological/traditional value
(e.g. gold, silver, precious stones) or prime economic value (e.g. energy,
food, iron).
and I don't think a single world currency is possible or desirable
without some kind of global super government
This is not necessary. A simple agreement between the major powers plus
subsequent domestic enactment -- such as followed from Bretton Woods in
1944 -- is all that is necessary. Although 44 nations took part in that
conference only two, the US and UK, were the important negotiators because
they controlled the two major world trading currencies at that time (and
were pretty sure that victory in World War II would see the end of the
existing Deutschemark and the then-Yen.)
Today, there are several major powers besides the US. There's China,
Brazil, Russia (by virtue of Europe's dependency on its natural gas), and
some Middle East countries (by virtue of their oil and gas). These
countries are already calling for a world currency. (I'm discounting the
European Monetary Union as a major player because it's highly likely that
this will crack up in the foreseeable future.) We can discount the UK and
Japan as important negotiators because they're economic satraps of the US.
(However, if the EMU cracks up soon, then Germany, already a major player,
would be importantly involved.)
that can dictate how individual countries should behave fiscally and
economically.
A world currency wouldn't dictate what individual governments do fiscally
or economically. Each of them could adopt the world currency as its own (as
with the EMU countries and the Euro) or carry on with their own national
currencies for internal use. Once the major negotiating powers fix the
initial price of their domestic currencies against the world currency, then
national currencies will be free to vary against one another according to
the fiscal discipline each imposes on its own citizens and the need to
import and export (defined against the world currency -- as almost all is
today against the US dollar).
Otherwise, the same kinds of problems will emerge as are current in the
EU with its common currency but very different fiscal and economic
behaviour from member to member.
The problem with the Euro is that it is a pseudo-currency. Its European
Central Bank was not a true bank in the usual sense of being able to issue
credit (its own rules forbade it), nor was it partnered by any sort of
European Government able to lay down fiscal rules on its member countries.
(What the EU had was a bunch of Commissioners in Brussels who were
gradually working their way towards legitimizing itself as a government but
still, after 50 years since the Treaty of Rome, never actually arriving there.)
And how many countries would buy into a common super-governmental
system? Not very many, and certainly not the major global players.
As before. Several major economic powers already want a world currency!
Once America accedes then all the other countries will have to accept the
world currency as a standard if they want to import or export.
The instability of currencies is one problem, debt is another and perhaps
a much larger one.
Well, they've both arisen together and would have to be solved together.If
(and I think when) a Bretton Woods II is established then Western
governments (all in debt to varying degrees) could offset their debts
against one another as part of the initial fix of national currencies
against the world currency.
Large sovereign debts have been accumulated in various ways -- the need to
fight wars (to spread freedom and democracy, for example) and most
recently to bail out banks and keep economies afloat. Large corporate
debts have resulted from changes in globalized trade patterns, and large
consumer debts have arisen because people feel they are entitled to more
than they can afford. Until something is done about debt the global
economy can't move forward much faster than a snail's pace, if it moves
forward at all.
Yes.
Meanwhile, problems lurk in the shadows. Unemployment is high,
populations are aging, and inevitable resource scarcities loom.
And of these I regard unemployment as being the most problematical. We are
moving into a highly specialized economy where, increasingly, a highly
-educated minority of advanced country populations, actually take economic
decisions and supervise their enactment. Increasingly, the majority of
advanced country populations are becoming either welfare dependents,
unemployed or are involved in mutual services of no added economic value
(though of purported social value).
Will this present social and economic divide continue (and perhaps
intensify?) or will advanced countries be able to educated the majority to
a sufficiently high standard so that specialist jobs (and their high
incomes) can be shared?
Keith
Ed
----- Original Message -----
From: <mailto:[email protected]>Keith Hudson
To: <mailto:[email protected]>RE-DESIGNING WORK, INCOME
DISTRIBUTION, ,EDUCATION
Sent: Friday, May 28, 2010 3:09 AM
Subject: [Futurework] Sound money
The following is a superb article from yesterday's WSJ. Judy Shelton's
discussion takes us only halfway there, however. If the US States-led
campaign succeeds in re-establishing the US$ against gold then there is
the further danger that in trying to stabilize the dollar the price might
be fixed either too high or two low. If the price is pitched too high
then the home population suffers from continuing recession. If too low,
then it will be regarded as predatory inflation by other countries and
invites reprisals.
If, however, a new world currency is established (such as proposed by
China, Russia, Middle East countries) and fixed against gold (or some
other important commodity), then individual national currencies, left
free from government control, means that individual governments will then
have to impose discipline on themselves. This they are unable to do at
present because there's such an easy recourse to printing money
(Quantitative Easing). When the present crisis affecting all Western
countries comes to a head -- as it surely must before too long -- then
this will be the only solution left.
Keith
The recovery starts with sound money
By Judy Shelton
The Wall Street Journal
Thursday, May 27, 2010
The euro is beset with fiscal calamities that threaten its downfall, and
markets in the U.S. are roiled by uncertainty over the government's
financial regulatory legislation. But don't worry. Treasury Secretary
Timothy Geithner meets with European finance officials today to discuss
the economic situation.
According to a Treasury Department statement, they will focus on
"measures being taken to restore global confidence and financial
stability." So everything is under control.
Right.
What government policy makers in the U.S. and Europe fail to realize is
that far from being seen as capable of delivering economic salvation,
they are increasingly perceived as primary contributors to global
financial ruin. Whether it's the fiscal recklessness of spendthrift
politicians or the refusal of government officials to acknowledge
failings -- distorting mortgage markets through Fannie Mae and Freddie
Mac, skewing assessments of credit risk through loose monetary policy --
the influence of government over the real economy is proving disastrous.
No wonder people are flocking to gold as they flee government-supplied
money. Neither the dollar nor the euro inspires much global confidence;
despite the dollar's relative safe-haven status, neither currency holds
out the promise of financial stability.
How can the real economy, i.e., the private sector, where genuine wealth
is actually produced, continue to function in the absence of reliable
money? Europeans will be wary of the euro from now on, given that the
European Central Bank has relaxed its standards for safeguarding monetary
integrity by absorbing Greek debt. Meanwhile, the perilous fiscal
condition of the U.S. has convinced many that our government will resort
to future inflation to reduce its own untenable debt burden.
It's hard to see how economic recovery can proceed when citizens suspect
that the monetary foundation beneath them is crumbling away. The
willingness to work and sacrifice for the sake of future prosperity is a
universal human quality -- the hallmark of entrepreneurial faith -- but
people must believe there is a link between effort and reward. Money
forges that link by providing a dependable store of value; in doing so,
it performs a vital social function.
The private sector is fully capable of recovering from economic downturn
if individuals have a meaningful tool of measurement for evaluating
alternative choices in a competitive environment. Comparisons based on
accurate, free-market price signals yield optimal economic outcomes. But
what we are witnessing today is a clash between the real economy's will
to resurrect itself and the persistent failure of government, here and
abroad, to deliver an appropriate platform of sound money based on sound
finances.
Even as the first inklings of rebounding growth can be discerned --
increased retail sales, higher corporate profits -- it takes only the
latest headline about government failure to come to grips with deficit
spending and accumulating sovereign debt to snuff out any potential
market rally. Pledges to achieve balanced budgets by some distant future
date do little to convince people that anything has really changed.
Tough rules to enforce fiscal discipline were part of the original plan
for persuading Europeans to abandon national monies in favor of adopting
a common currency. Limits on deficit spending and government debt were
clearly stipulated in the Stability and Growth Pact -- no more than a 3%
budget deficit, maximum debt equal to 60% of GDP. But these criteria were
quietly jettisoned years ago and have now been flagrantly breached en
masse by European nations responding to the financial crisis with bailout
packages and fiscal stimulus.
In the U.S., frustrations over Washington's seeming inability to resist
fiscal profligacy have found voice in the tea party movement. As national
sentiment grows in favor of limited government and constrained powers,
legislation has been introduced in nine states to nullify federal legal
tender laws; the Fed's monopoly on supplying the money U.S. citizens must
use is being challenged by authorizing payment in gold and silver.
Invoking the 10th Amendment strictures of the Constitution, proponents
argue that the Founding Fathers never intended to grant federal
government both the right to borrow money as well as the power to
manipulate the value of the monetary unit of account. Money linked to
gold and silver retains its value, which prevents the medium of exchange
from falling victim to the federal government's inherent conflict of
interest if it can fund its own debt with money created from thin air.
Updated for our times, a number of the legal tender proposals specify
that citizens would be allowed to tap electronic exchange-traded funds
(ETFs) backed 100% by gold or silver to conduct digital transactions with
state government.
The idea of rising above the administrative dictates of fallible
government to reclaim the virtues of sound money is profoundly liberating
-- and could prove economically empowering. Who believes that officials
in Brussels or Frankfurt will safeguard the value of euro-denominated
savings in the face of political pressures? Who expects the "Financial
Stability Oversight Council," led by the Treasury secretary as prescribed
in the regulatory overhaul bill, to spot the next asset bubble before it
ruptures with catastrophic financial consequences for American retirement
accounts?
The transition to a firmer monetary footing to support entrepreneurial
capitalism could be initiated by linking major global reserve currencies
to gold and silver -- commodities long associated with monetary
functions. It would logically begin with the dollar. As a first step,
U.S. citizens could ask Congress to authorize the limited issuance of
gold-backed Treasury bonds that would provide for payment of principal at
maturity in either ounces of gold or the face value of the security, at
the option of the holder.
The level of public confidence in fiat dollar obligations versus gold
would be revealed through auction bidding, with yield spreads clearly
reflecting aggregate expectations of their comparative values. In the
same way that inflation-indexed Treasury bonds measure expectations about
future changes in the Consumer Price Index, gold-backed Treasury bonds
would provide a barometer of the Fed's credibility.
By linking the dollar to gold, Americans would establish a vital
beachhead for sound money and provide a model that other nations could emulate.
-----
Ms. Shelton, author of "Money Meltdown" (Free Press, 1994), is a senior
fellow at the Atlas Economic Research Foundation and co-director of the
Atlas Sound Money Project.
Keith Hudson, Saltford, England
----------
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Keith Hudson, Saltford, England
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