04.30.2010 0

A Good Dollar Bill Makes A Sound Currency

  • On: 05/19/2010 10:36:34
  • In: Monetary Policy
  • By Dave Cribbin

    It has been nearly 4 decades since President Nixon, in an attempt to win re-election, cut the U.S. dollar loose from its golden anchor in order to manage the economy towards a higher GDP number. Win he did, but for the rest of us that move has turned out to be a failure of epic proportions. Each market blow up and bust is accompanied by the usual frenzy of Congressional finger pointing that always leaves its ten regulatory thumb prints on the economy, but never fingers the co-conspirators most responsible for creating the chaos: the current and former Secretaries of the Treasury and the Chairmen of the Federal Reserve.

    While Bernie Madoff cools his heels in a jail in Butler, North Carolina for bilking the public out of billions, a much brighter future awaits those men responsible for causing trillions of dollars in damages to both private and public sector balance sheets the world over. They become highly sought after advisers, earning seven and eight figure paydays from banks (Robert Rubin , Citi Group,) Hedge Funds ( Alan Greenspan, Deutche Bank, PIMCO and Paulson&Co,) and Private Equity firms (John Snow, Cerebus Capital Management,) a strange payoff for the economic havoc they have wrought with their calamitous monetary policies.

    The media who understand monetary policy even less sing their praise, bestowing upon them monikers like “The Maestro,” while ex-presidents exalt them, even going as far as calling one former Secretary of the Treasury the “Greatest Secretary of the Treasury since Alexander Hamilton.” Comparing any of these monetary undergraduates to Alexander Hamilton, the man who defined the value of the U.S. Dollar, is to slander Hamilton.

    The idea that the U.S. dollar, the reserve currency of the world used in measuring the value of billions of transactions every day, should rise and fall as erratically as an amusement park theme ride in order to manage economic growth is nonsensical. Those who preach that markets should set the value of the dollar fail to understand that this is not a monetary policy but is instead a lack of a policy. Finally the Pols who endlessly argue that a weaker dollar will make our exports more competitive should go back to washing cars or organizing communities or whatever other brainless endeavor they previously preformed. If they truly wanted to make not only our nation’s exporters but our entire economy more competitive, there are any number of policies they could pursue, including but not limited to the following: reducing corporate tax rates, promoting free trade, reducing unnecessary regulation, oh and lest I forget, the most important of them — stabilizing the value of the dollar.

    The dollar is but a measuring tool used to determine if transactions make economic sense. The dollar’s role is to translate the value of dissimilar products and services into money values called prices in order to enable comparison. Allowing large swings in the value of the dollar — from 35 dollars for an ounce of gold in 1970 to $800 in 1980 back to $250 in the late 90’s and the over $1200 dollars needed to purchase a single ounce of the shiny metal in today’s market, a five-fold increase in the last ten years — as has been our policy merely adds another level of risk to all but spot transactions.

    Infusing longer-dated contracts, whether they be for goods and services or the use of capital as in bonds or equities with additional risk, serves only to increase the price of those transactions, causing many more of them to fail than would be the case with a stable dollar. This results in fewer transactions, less investment, slower economic growth and fewer jobs.

    Congress needs to take back its responsibility and once again ensure the soundness of the dollar. Congressman Ted Poe from Texas has a bill to make that happen. Read it here and show your support.

    Dave Cribbin, President of Tailwind Capital, is a Liberty Features Syndicated writer.

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