Written by Phil Guarnieri Friday, 04 May 2012 00:00
Even if you’re flying in a thick fog, you can’t miss the flailing semaphore signifying that the economy is headed for a crash landing. The recovery, the most enervating since the Great Depression, is kaput: Growth rates are anemic, unemployment levels frozen at more than 8 percent, (and that’s not counting the demoralized who have stopped looking for work), and the enormity of the debt can make a man with ice water in his veins grow pale with fright.
What’s most troubling is that the government is not being truthful with us. In fact, they’re lying. Prices are escalating faster than at any time in American history. Global food prices have ascended to record levels; health costs are up more than 40 percent; corn has never been more expensive; gas prices are soaring to more than $4 dollars a gallon; a container of milk costs more than the cow and cotton has hit a century and a half high. And yet the Bureau of Labor Statistics reports that inflation from 2009-2011 was only 1 percent. What gives? Not since General William Westmoreland, just prior to the Tet Offensive, assured Americans that North Vietnam’s capability to make war was being systematically destroyed has the creditability gap between what the government is reporting and what the reality is been so wide.
No wonder the price of gold is ridiculously high, or maybe it’s not so ridiculous. When insupportable levels of deficits materialize, people will trade those worthless pieces of legal tender we carry in our wallets for a physical, measurable commodity that has real value. No metal is more tried and true than gold, which has served as a reliable form of wealth for most of history. In the 16th century, the Spanish conquistadors stole enough of it from the Aztecs to make Spain the wealthiest power of the era. The only reason our weakening dollar has any creditability is because we’re assured by our government that it is backed by the “full faith and credit of the United States.” But if things continue to fly south, it’s not inconceivable that the dollar may fall into the same disrepute as its predecessor when the phrase “Not worth a Continental” pounded the eardrums of Colonials during and just after the American Revolution.
If you think such scenarios are ancient afflictions, then consider Greece and much of today’s European economy, which is malnourished and wasting away. It would be foolhardy to believe that the American economy is impregnably insulated from such a disorder. The cacoethes of modern governments to spend extravagantly and then put the bill on already overburdened credit cards has a depressing yet, paradoxically, venerated pedigree. This bizarre notion of government’s omnificence materialized, root and branch, during the New Deal and its ever-growing provision defies rationality. Spending is now so disproportionate to revenue that if nothing is done and soon, the only way to climb out of this Grand Canyon of debt is to grease the printing presses and inflate our way out of it. The effect is like introducing cyanide into the economic bloodstream, for nothing more completely and dramatically debauches the monetary system than inflation run amuck.
With flags waving, bugles sounding and guns blaring, gold bugs are on the march. They argue that only going back to the gold standard can make straight our profligate ways. With the Federal Reserve continuing to monetize our debt, one can see why strict constitutionalists object to the role of government issuing fiat currency through central banks. The U.S. formally went on a classical gold standard following the Panic of 1873 and remained on it until the beginning of WWI in 1914. During that period the debt was suppressed and inflation measured an exiguous 0.1 percent. Having the money supply tethered to an actual physical measure invoked discipline and limited the government’s ability to increase the money supply.
After WWI, the classical gold standard did not exist, but the international gold exchange continued to lend creditability to the U.S. dollar. Under the Bretton Woods system, which established rules for commercial and financial relations among major industrial states after WWII, the U.S. dollar would be the international standard to which other currencies would be fixed and would remain so until President Nixon closed the gold window in 1971 by unilaterally terminating the convertibility of the dollar to gold.
With Lyndon Johnson’s Great Society, pump priming went on steroids. Saturated in a sea of greenbacks, the 1970s were a mess until the Reagan-Volker alliance restored confidence in the dollar. While this act of political will demonstrated that a democracy could defeat inflation, it only managed to do so through a Draconian contraction of credit that raised the unemployment rate to nearly 11 percent before the economy’s nervous breakdown was sedated and convalesced.
Ron Paul and Lewis Lehrman have energetically postulated that the only way to minimize the wild gyrations of these expansions and contractions would be the imposition of another gold standard. My knee-jerk reaction: You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind on a cross of gold.
Well, that wasn’t me. That’s William Jennings Bryant in his riveting 1896 speech at the Republican National Convention, which won him the presidential nomination. Along with Lincoln’s “House Divided” and Martin Luther King’s “I Have a Dream,” Bryant’s “Cross of Gold” is probably the most famous and quoted of all non-presidential speeches. Just as King lyrically fulminated against the tyranny of Jim Crow, Bryant raged against the despotism of gold.
To crucify America upon a cross of gold invites civil strife, but for reasons different than those Bryant self-assuredly espoused. As an economy’s productive capacity grows, it’s natural that its money supply should also. Moreover, recessions, inevitable in free markets, are mitigated by increasing the money supply whatever the availability of gold might be. There’s more. Since money must be backed by gold, the scarcity of the metal will constrain economic growth. If the demand for gold rises anywhere in the world, the price of everything must drop if it is measured in terms of gold. This means greater risks of deflation and unemployment. Fidelity to the gold standard contributed to the severity of the Great Depression since the Federal Reserve, guided by the aforementioned creedal injunctions, wouldn’t expand credit enough to offset the deflationary forces afflicting the economy.
No wonder John Maynard Keynes saw gold as an “ancient relic” in terms of governing money supply and Milton Friedman, a monetarist, anatomized its pretensions at regulating a modern economy. While the gold standard has merit for those, like me, who are averse to giving so much discretionary power to central banks, it cannot fulfill the diversified and complex demands of a large-scale economy that has an international reach.
Still, there are times I am tempted in this age of entitlement and ever growing largesse, to chain our expansive appetites with links of gold. When the media and policymakers adoringly gaze at Nobel Laureate Paul Krugman when he states that we haven’t borrowed enough to get out of a crisis already brought on by too much borrowing, my hair stands up.
Our government will, most likely, continue quantitative easing by writing blank checks to buy up government debt. As more and more money floods the economy, your income, your savings, your pension, your home and everything you own will depreciate in value. I hope that others in these United States will shed the scales from their eyes and join those who see the prospects of this great country being recklessly gambled away by the dissolute in Washington. It is for us to answer the summons of history and change the future. The gold standard I could do without, but faced with these ominous trends, a glass of water and a couple of aspirins would do nicely.
Thursday, 17 July 2014 00:00
The Town of North Hempstead has prepared a transportation contingency plan for local commuters who may be looking for alternatives if the Long Island Railroad (LIRR) workers strike on July 20.
The plan includes adding free parking at North Hempstead Beach Park, on West Shore Rd. in Port Washington, to aid car pooling, and providing up to 300 spaces at iPark, 1305 Union Tpke. in New Hyde Park, enabling commuters to catch bus service along Union Tpke. or meet up with carpooling buddies.
Wednesday, 16 July 2014 00:00
Speaking for a group of local residents, Santo Cipolla is asking the Sewanhaka Central High School District to revisit a 28-year-old policy that allows one community to attend any of the five district high schools, including Floral Park Memorial High School.
“It was a policy that was created to desegregate South Floral Park and a portion of Floral Park called Jamaica Square,” Cipolla said at a school board meeting last week. “It is our belief that there is not equal access to the schools and violates the equal protection clause under the Fourteenth Amendment.”