Harry,
At 22:52 31/05/2010 -0700, you wrote:
Ed
I doubt that 'sound money' is possible without an external policeman such
as being tied to the gold market -- or some other commodity.
Free market exchange rates indicate the health of an economy. If Greece
were not a Euro country, its exchange rate would have told everyone that
it is in trouble.
Managed exchange rates lose this worthwhile advantage as you suggest.
Harry
In effect, what is going on now is a battle between the US$ and the price
of gold. But unlike the huge spike and crash of gold in 1980, the central
banks have been unable to prevent the rise in gold price in recent years.
Instead of selling their gold (to bring the price down) they have kept hold
of it for their foreign exchange reserves (obviously no longer confident in
their own currencies). Nowadays they seem to be able to temporarily check
any incipient surges at psychologically important prices ($1150, $1200,
$1250, etc -- as tend to be used by options traders) in the hope that this
will cause a proper downturn. But this (at the present time of extreme
uncertainty in the currency market -- dollar versus euro) is unlikely
unless the US can somehow rescue the European Monetary Union and stop the
slide of the euro.
Gold is being increasingly bought by hedge funds and others who want to
safeguard themselves from currency chaos and defaulting governments. The
longer that the Fed and Western central banks try to disparage gold the
more that it will become the world currency by default.
Keith
From: [email protected]
[mailto:[email protected]] On Behalf Of Ed Weick
Sent: Friday, May 28, 2010 2:15 PM
To: RE-DESIGNING WORK,INCOME DISTRIBUTION, EDUCATION; Keith Hudson
Cc: [email protected]
Subject: [Ottawadissenters] Re: [Futurework] Sound money
I'm sure sound money, and soundly managed money, can be achieved without
reverting to the gold standard and I don't think a single world currency
is possible or desirable without some kind of global super government that
can dictate how individual countries should behave fiscally and
economically. 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. And how many countries would
buy into a common super-governmental system? Not very many, and certainly
not the major global players.
The instability of currencies is one problem, debt is another and perhaps
a much larger one. 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.
Meanwhile, problems lurk in the shadows. Unemployment is high,
populations are aging, and inevitable resource scarcities loom.
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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