By Steven Lonegan
The U.S. economy continues to struggle. Wages remain stagnant for working families. Inflation slowly diminishes the average family’s consumer strength and unemployment now includes factors like masses of workers dropping out of the workforce. So what has changed in America the last 40 years that has dimmed the economic optimism that drove the greatest generation and baby boomers?
August 15, 1971, 43 years ago, President Richard Nixon unilaterally ended the Bretton Woods international monetary system by breaking the link between the dollar and gold, ending 180 years of America’s gold standard.
Since then, the U.S. economy has experienced slower growth, higher-than-average inflation, higher unemployment rates, more bank failures and a series of financial crises that, in total, have reduced our income by about a third. During the 40 years prior to 1971, average annual GDP rose 4.5 percent versus an average of 3.5 percent since the closing of the gold window.
Fight for value
Historically, Americans have been willing to fight for the value of their money, so recent complacency over the destruction of the dollar is disturbing. The Federal Reserve System originally built to defend the gold standard and assure sound currency, has enshrouded monetary policy in mystery by piling on complex statistics and issuing incomprehensible mind numbing reports. This technique has succeeded in getting the mainstream financial media to take its mutterings as fact.
But strip away the daunting statistics and here is the simple fact: The rich are getting richer watching their portfolios grow, riding an unsustainable stock-market bubble that is the result of the Federal Reserve Bank printing money out of thin air and maintaining artificially low interest rates, while average working families are suffering from stagnating wages and the declining buying power of their dollar. Seniors are watching their life savings decline as inflation, planned by the Federal Reserve, outpaces the interest they can get in the bank.
Federal Reserve Chairwoman Janet Yellan announced a target inflation rate of 2 percent a year, amounting to a loss of $1,000 to an average family every year. This is no longer a debate over monetary policy — it has become a moral issue.
Look to Oz
If one doubts the ability of the average citizen to engage in the discussion of monetary policy one need only to read “The Wonderful Wizard of Oz”. , by L. Frank Baum., the book is a political parody portraying the bi-metal battle over gold versus silver for coinage — Oz being the ounce of gold, the yellow brick road symbolizing gold, and Oz, itself, Washington DC.
Oz himself portrayed the president manipulating the levers of power: the Scarecrow symbolized the downtrodden, mid-western farmers; the Tin Man, the unions; and the Cowardly Lion, William Jennings Bryan. Bryan had campaigned for president on a bi-metal gold and silver standard. Dorothy’s original red slippers were silver, not red, symbolizing the call for silver to add to the gold backing of currency.
Monetary policy dominated the political scene and public discussion for decades. Americans took their money seriously, whether the dollar was backed by gold or silver or both, people did not trust government printed paper money that was not backed by precious, indestructible metal.
The original meaning of “The Wizard of Oz” has faded from memory, so has America’s understanding that paper money printed at the will of government bureaucrats has no true value. The metaphysicians who operate the levers of power at the Federal Reserve System believe they can control and fine tune the economy by printing money as they see fit or tampering with interest rates. They issue economic reports about our entire complex economy, millions of us making decisions every minute of every day, and months and even years later they will revise those reports. And they are almost always wrong.
Just pieces of paper
The danger is that to achieve their ends, they must control your money. The value of what you have earned is not backed by anything you can hold in your hand or even stash under your mattress. It is pretty pieces of paper that cannot be redeemed for anything but consumer goods and inflation is eating away at that or risked in the stock market.
American money is not yours. It is instead a unit of measure whose value is determined by others. It is only what people perceive it to be and the day the world wakes up and says that this money is nothing but pictures of dead presidents we will experience a social upheaval and economic disaster that will make the Depression look like a cake walk.
The economic stagnation resulting from Nixon’s action do not end at our own borders. As the world’s reserve currency American monetary policy impacts the entire world. The number of banking crises per year has soared to 2.6 per year, compared to only one every 10 years under Bretton Woods.
It is ironic Nixon left office because he had lost the confidence of the nation. Americans overwhelmingly said they could not trust him. So why do we trust Nixon’s decision to take away the gold standard and give control of all we earn and save to a gang of bureaucrats?
Every candidate seeking their party’s nomination for president should be asked one simple question: What about our money? Americans need to once again engage in the debate over monetary policy. It’s time to pull back the curtain on the Wizard and take back control of our money.
Steven Lonegan is Director of Monetary Policy for the American Principles Project.