Personally, I don't think currency is the issue, nor do I think that an
international currency would resolve it. We already have real or defacto
international currencies, the U$ dollar and the Euro and we also have gold, yet
the problems continue to mount.
The real problem seems to have two key aspects to it. One is that economies,
especially advanced economies, have extended their consumption far beyond
their ability to produce and thus rely on 'bailouts', whatever their form, to
keep doing what they are doing. The US, for example, relies heavily on China
to leverage its fiscal debt. Banks have relied heavily on the taxpayer to bail
them out. The other part of the problem is compounding uncertainty around the
question of how long economies and their key institutions can keep doing what
they are doing, consuming more than they are producing, and relying on others
to bail them out. There has to be an end-point and it's probably not too far
away.
Ed
----- Original Message -----
From: Keith Hudson
To: Harry Pollard ; 'RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION'
Sent: Tuesday, June 01, 2010 6:24 AM
Subject: Re: [Futurework] [Ottawadissenters] Re: Sound money
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: Keith Hudson
To: 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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