The True Gold Standard (Second Edition)
Remarks on Money: How the Destruction of the Dollar Threatens the Global Economy — and What We Can Do about It by Steve Forbes and Elizabeth Ames
My big takeaway from Money (McGraw Hill, 2014) is that Steve Forbes is no James Dean. Forbes is a rebel with a cause. Free-markets and sound money, please. In what follows, I will briefly mention 11 other takeaways from my reading of Money by Steve Forbes and Elizabeth Ames.
The Great Recession grinds on. And as it does, politicians of all stripes ask, usually behind closed doors, “Just how miserable are our citizens?” The chattering classes offer a variety of opinions. As it turns out, there is a straightforward way to measure what is termed the misery index.
The late Arthur Okun, a distinguished economist who served as chairman of the President’s Council of Economic Advisers during President Johnson’s administration, developed the original misery index for the United States. Okun’s index is equal to the sum of the inflation and unemployment rates.
Dr. Karl Schiller, West Germany’s Economics Minister between 1966 and 1972, pithily pronounced that: “Stability is not everything, but without stability, everything is nothing.” I agree. In the economic sphere, instability is usually a “bad”, not a “good”.
The world’s great destabilizer is the United States. How could this be? In the post-World War II era, the world has been on a U.S. dollar standard. Accordingly, the U.S. Federal Reserve is the de facto central banker for the world.
Well, it’s official, the economic talking head establishment has declared war on Germany. The opening shots in this battle were fired by none other than the United States Treasury Department, which had the audacity to blame Germany for a weak Eurozone recovery in its semi-annual foreign exchange report. The Treasury’s criticisms were echoed by IMF First Deputy Managing Director David Lipton, in a recent speech in Berlin — a speech so incendiary that the IMF opted to post the “original draft,” rather than his actual comments, on its website. Things were kicked into a full blitzkrieg when Paul Krugman penned his latest German-bashing New York Times column.
The claims being leveled against Germany revolve around nebulous terms like “imbalances” and “deflationary biases.” But, what’s really going on here? The primary complaint being leveled is that Germany’s exports are too strong, and domestic consumption is too weak. In short, the country is producing more than it consumes. Critics argue that “excess” German exports are making it harder for other countries (including the U.S.) to recover in the aftermath of the financial crisis.
Well, it’s official. President Obama has picked Janet Yellen as his nominee to be the next Federal Reserve Chairman. In the months leading up to this announcement, the press unanimously dubbed Yellen the Queen of the Doves, pointing to her reluctance to roll back the Fed’s Quantitative Easing program. As it turns out, however, Yellen is hardly the dove she is made out to be. Indeed, when it comes to money supply, Dr. Yellen seems, well, downright hawkish.
Traditionally, the dove label has referred to an emphasis on the Fed’s mandate to pursue full employment (even at the expense of slightly higher inflation), while the hawk label has referred to a focus on the Fed’s price stability mandate. In practice, however, the dove-hawk distinction typically comes down to a question of the money supply: to increase, or not to increase?
It is an honor and great pleasure to deliver a few remarks on Prof. Timberlake’s profound book, Constitutional Money (Cambridge University Press, 2013). At 90 years of age, Dick is still at the top of his game. Why? I think the secret lies in what Winston Churchill said when he returned from the Boer War: “there is nothing more exhilarating than to be shot at without result.”
Dick knows all about Churchill’s feelings of exhilaration — literally. As recounted in his autobiography — They Never Saw Me, Then — Dick was a member of the 388th Bomb Group during the Second World War. The 388th was based in England. For his part, Dick flew his B-17 over the channel into Germany on bombing runs 26 times in 1944. Well, the Germans wounded Dick three times, but they never took him out — fortunately.
Since then, Dick has produced a steady stream of scholarly books and papers, in which he has gotten down into the plumbing of money and banking. He has been a target of many academic hacks — without result. This must have been exhilarating, too.
Now, let’s turn to Constitutional Money. First, allow me to say that I second the endorsement of my friend, the great economist Professor Leland Yeager. As Prof. Yeager, who is only a couple years Dick’s junior, noted on the book’s dust jacket: “Timberlake writes smoothly, with flashes of brilliant phrasing and an attractive mix of short and moderately long sentences.”
The American people might be surprised to learn that for the past 20 years a handful of lobbyists and lawmakers—mostly from states with mining and metal-processing interests—have been pushing a proposal to take away dollar bills, and force the public to use metal coins instead.
The most recent attempt is the Currency Optimization, Innovation and National Savings (Coins) Act, sponsored by Sen. Tom Harkin (D., Iowa). This proposed law would prohibit the issuance of dollar bills after five years and replace them with dollar coins. The otherwise obscure piece of legislation was recently catapulted into the spotlight when Coins Act co-sponsor, Sen. John McCain (R., Ariz.) made the somewhat dubious claim that switching to a dollar coin would mean higher-denomination tips for strippers.
The more serious Coins Act proponents have seized on the continuing budget battle in Congress, arguing that the legislation would save billions supposedly being wasted on the replacement of worn-out dollar bills. They've latched on to a 2011 Government Accountability Office study that projects a multibillion-dollar "net benefit" from the switch to dollar coins.
If you buy the GAO's analysis, which is based on questionable assumptions, you might conclude that switching to a dollar coin would improve the federal government's bottom line. But for all the GAO's calculations, the report's findings are negated by its admission that the public is unlikely to accept the change unless they are literally given no choice—which, of course, is precisely the point of the Coins Act.
For academics, the term "troubled currency" might be a term of art. But for people who are faced with such a currency, they know a troubled currency when they see one. Today, this is the case for millions of people around the world — most notably in Iran, North Korea, Argentina, Venezuela, Egypt and Syria.
A troubled currency is one in which users have lost confidence. When users no longer think a currency will retain its purchasing power, they attempt to dump it for a stable foreign currency (or commodities). As the demand for the troubled currency evaporates, its value vis-á-vis stable foreign currencies collapses, and prices for goods and services sold in the troubled currency soar. As this process develops, expectations about the currency’s ability to retain its purchasing power deteriorate, and a doom loop ensues. At the extreme, doom loops can culminate in hyperinflation — an inflation rate of over 50% per month. This, however, is rare. Indeed, there have only been 56 cases of hyperinflation.
The Bulgarian Academy of Sciences Awarded the Title "Doctor Honoris Causa" to the World-Famous Economist Prof. Steve Hanke
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Today at 11:00 am in the Great Hall of the Bulgarian Academy of Sciences a ceremony was held for the awarding of the honorary title "Doctor Honoris Causa" to the world-famous economist, Prof. Steve Hanke - Advisor to the President of Bulgaria for the introduction of the currency board. The title was awarded by the Executive Council of the Academy, with a decision dated 3 July 2013, Protocol № 6, p.6.
Apart from the scientific community, the ceremony was attended by the Prime Minister of Bulgaria Plamen Oresharski, the Minister of Education Aneliya Klisarova, Evgeni Angelov - Advisor to the President, the BNB Governor Ivan Iskrov, ambassadors and other officials.
The ceremony was led by the Vice President of BAS, Corr. Member Nikolai Miloshev. He welcomed the participants and gave the floor to the President of the Bulgarian Academy of Sciences, Acad. Stefan Vodenicharov to present Prof. Hanke and to announce the decision of the Executive Council of the Academy of Sciences for the awarding of the title.
Acad. Vodenicharov pointed out the contribution of the professor for the economic and financial stability in the world, including Bulgaria. Acad. Vodenicharov noted that Prof. Hanke is co-director of the Institute for Applied Economics, Global Health and the Study of Business Enterprise at the "John Hopkins" university in Baltimore, USA; senior member of the Cato Institute in Washington; a professor at the University "Pelita Harapan" in Jakarta, Indonesia; Senior Advisor to the University "Renmin" at the Chinese Institute of currency research- Beijing; Special Adviser to the Center for Financial Stability - New York; member of the International Council of the National Bank of Kuwait; a member of the Financial Council of the United Arab Emirates and others.
In his academic speech, Prof. Hanke thanked for the honor and expressed concern about the current situation in Bulgaria. He went back 15 years, to 1997, when the Bulgarian government turned to him for advice. Prof. Hanke said that then and now, the biggest problem of our country is corruption. The difference today, however, is that there is a serious shortage of hope. To get Bulgaria out of the crisis Prof. Hanke recommended the Singapore strategy to be implemented. He told the story of Singapore from the separation and independence from Britain in 1963 until today.
"Then (in 1963, editor's note) Singapore was ranked among the poorest countries in the world, much poorer than Bulgaria today.” - Prof. Hanke said. “But there the success is attributable to investment, Singapore took a few steps that revitalized the economy – a currency board was set up for financial stability and external borrowing was carefully monitored; the market and prices were liberalized; an emphasis was put on equitable justice and internal order and all the possibilities for corruption were eliminated. And today there's no corruption, unlike Bulgaria. "- Said Prof. Hanke.
The professor said that the crisis is an opportunity for progress. According to him Bulgaria should aim towards an economy based on knowledge and added value.
After the President of BAS Acad. Stefan Vodenicharov bestowed the honorary title to Prof. Hanke, the Prime Minister of Bulgaria, Plamen Oresharski, greeted him with an address. He expressed satisfaction with the decision of the Executive Council of BAS for the awarding of the title and said how much Prof. Hanke has contributed to financial stability in the country by describing the worst financial, economic and political crisis in the modern history of Bulgaria in 1997.
"For more than 15 years our monetary system has been praised and criticized, but it is a fact that it has contributed to the economic progress of our country. I want to thank Prof. Hanke for the periodic reviews - sometimes critical, sometimes encouraging, but always in a positive style. I hope that he will always be predisposed to Bulgaria," added the prime minister.
BY STEVE HANKE: