Let's Get the Dollar's Value Under Control

The United States is headed into a very important election in November of 2010, if the political pollsters are to be believed. Americans, besieged by a weak dollar and an even weaker economy, are reassessing some of their most basic assumptions about how the country works. RealClearMarkets has recently published columns on the mistakes of the Bush Administration along with others calling for higher taxes to pay down the national debt. Important as these subjects may be, they are only symptoms of a much larger malady.

The public is really scratching its head as long held assumptions prove to be wrong. The Bush Administration of establishment Republicans let the dollar essentially collapse, although responsibility for its value does rest with the Federal Reserve and the Treasury. His administration was preceded by Bill Clinton's, a Democrat, who lost control of Congress to the Republicans. Ironically, he is credited with many positive economic developments coming out of Ronald Reagan's tax cuts, which may have had more to do with Alan Greenspan's Jekyll and Hyde monetary policy than anything emanating from the White House.

In the first ten years of his reign as Chairman of the Federal Reserve System, Alan Greenspan followed a sound money policy based on the price of gold averaging around $350 an ounce into the end of 1996, when he gave his "irrational exuberance" speech worrying about high stock market prices. Donald Luskin of TrendMacrolytics published a great chart of what happened, when the Fed stopped watching gold. Of course, were you to ask Mr. Greenspan, he would probably deny it. Be that as it may, after that the Federal Reserve entered into an extremely deflationary period, which saw the dollar rise from $350 to $250 an ounce into the beginning of the next decade.

AUTHOR CONCLUDES:

The only way to solve the monetary problem is to realize it is too important to be left to the politicians. The public decided precisely that in the presidential elections of 1896 and 1900, leading to the “Gold Standard Act” of 1900. William Jennings Bryan may not have wanted to “be crucified on a cross of gold”, but most Americans wanted sound money.

The gold standard may be too much for a lot of people these days, but Washington has to get the value of its money under control, so the people can use it; this does require some sort convertibility as a “money-back guarantee”, as the sign of confidence and support. There are many ways to do it, all of which revolve around holding a market price of the currency.

Somehow people have forgotten the definition of money: a medium of exchange, unit of account and store of value. Then again, the banks and brokers created money-fund money, so there is a real, commercial demand for something that does hold its value and we can use.

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