The True Gold Standard (Second Edition)
Republicans are searching for big, bold ideas that will inspire voters to embrace a conservative agenda. To unite its disparate segments, the GOP needs to uphold our nation’s founding principles—a key requirement for Tea Party adherents—while fostering the aspirations of those who believe the United States should play a strong leadership role in the world. A prime opportunity presents itself in the most compelling problem America faces: the need to restore confidence in its economic future.
Uncertainty over interest rates and the Federal Reserve’s next policy move is discouraging private sector decision-making and hampering growth; without economic growth, we cannot tackle other pressing concerns. On the global front, the disconnect between the money-pumping actions of central banks and the lackluster performance of real economic variables, such as wages, is fueling the political tensions of income inequality.
And you thought that last global financial crisis was bad.
A report issued on Sunday by the Bank for International Settlements (BIS) warns that policymakers have failed to address the root problems that caused the 2007-2008 financial meltdown. Instead of taking a long-term perspective aimed at increasing real economic productivity and output — the kind that actually benefits people by raising living standards — government officials have sought to pump up the numbers through monetary and fiscal stimulus.
As a result, we now have an alarming disconnect between the performance of global equity markets, which are booming, and an underlying world economy that is merely limping along. While major stock exchanges around the world have experienced spectacular returns — Standard & Poor's 500 Index went up 30 percent last year — real-world economic growth came in at a meager 3 percent for the first quarter of 2014.
As Ukrainians mourn their dead and vow to prosecute their recently deposed leader, the valor of those who died must now inspire others to build a new Ukraine worthy of their struggle and sacrifice. Democracy and a better future must be secured in pragmatic terms. Economic benefits must begin to flow in tandem with Ukraine's nascent commitment to genuine self-government and responsibility.
Europe and the U.S. are rushing to put together billions of dollars in financial aid for Ukraine, keenly aware that they have been granted a second chance. Last November's potential trade deal with the European Union was scuttled when Ukraine turned to Russia at the last moment for economic sustenance.
But if efforts to forge a newly generous package get bogged down in trans-Atlantic negotiations and the institutional requirements of the International Monetary Fund, the moment to help Ukraine gain a solid economic footing may be lost. And should its currency, the hryvnia, meanwhile succumb to panic and meltdown, the opening for freedom may be squandered.
The most expedient way to establish a sound-money foundation—in keeping with Ukrainian aspirations for an independent nation capable of succeeding in the global economy—would be to initiate a currency board.
At first, it was fun—this parlor game of guessing who the Obama administration will appoint as the next chairman of the Federal Reserve. We all assumed it would be Janet Yellen, because she’s a woman. And then suddenly we had Larry Summers all over the leading financial newspapers receiving multiple endorsements from respected economists. There were sly references to his intellectual prowess and invaluable experience, not to mention (but they always did) his connections with Obama’s closest advisers on economic and financial matters.
Now this little diversion for monetary policy wonks is shaping up to be a referendum on banking deregulation efforts and “sensitive gender issues”—even as the president emphasizes wealth inequality as the defining problem for a nation unable to regain its economic footing and start growing again despite four years of unprecedented fiscal and monetary stimulus.
“When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy,” intoned President Obama in his Knox College speech on July 24. “When middle-class families have less to spend, businesses have fewer customers.”
What are the chances that President Barack Obama and his Treasury secretary, Timothy Geithner, will ever have anything meaningful to say about monetary policy—beyond continuing to try to coax Federal Reserve chairman Ben Bernanke to print ever more dollars to buy up ever more U.S. government debt? About the same as the interest rate you are receiving on your savings: zero.
That’s why it matters so much for the future of the United States—indeed, the future of the global economy—that Paul Ryan is now on the Republican ticket. Because it’s not just the fiscal fiasco, caused by political cowardice and dithering, that has put our nation on a path to eventual bankruptcy. It’s also the loss of a monetary compass. The value of the dollar has been so compromised through loose Fed policies that it no longer functions as a trustworthy money unit. Instead of providing a reliable tool for measuring what something is worth, or for deciding whether to consume now or save for the future, the dollar has become yet another policy instrument of government.
One notable who’d be a severe critic of our monetary situation today is Thomas Jefferson. In his Notes on the Establishment of a Money Unit and of a Coinage for the United States, written in 1784, Jefferson focused on the need to protect the integrity of the American dollar. A dependable currency would not only unite the former colonies and facilitate commerce throughout the fledgling nation, it would also facilitate individual endeavor and economic opportunity. For the first time, for example, Jefferson argued, a nation’s monetary standard would be based on the decimal system so that business calculations would be simple, honest, and straightforward.
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BY JUDY SHELTON: