How to Save the U.S. Economy: Kill 1971's 'Floating Dollar' Experiment 6 comments
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I live in the 32nd Congressional District of Texas. I am represented in the U.S. House of Representatives by Congressman Pete Sessions, a Republican (for better or for worse). Recently, Congressman Sessions sent an email to me and other constituents in the 32nd District giving us greater detail on the Republican counter-proposal to the current Bush-Paulson-Bernanke proposal asking Congress for unlimited authority over $700 billion to buy bad debts from Wall Street firms at U.S. taxpayer expense. At the end of his email, Congressman Sessions invited me to share my comments on the counter-proposal with his office in Washington, D.C. Below is the text of my faxed comments to Congressman Sessions. For all Americans, it is our civic duty to let our voices be heard in the political process through our representatives. I encourage everyone to contact their representatives in Congress to let them know their own thoughts and feelings on the current economic crisis and the multiple proposals to remedy the situation currently floating around in Congress.
Congressman Sessions:
Thank you for your email. The Republican proposal is a step in the right direction – 180 degrees away from the $700 billion taxpayer funded bailout of America’s most financially inept and irresponsible.
As a recognized expert in finance and investments, I strongly encourage you to add to this new Republican proposal a change in the U.S.’s current monetary policy where the printing of fiat money is the knee jerk response to almost every financial problem on Washington’s radar screen.
The booms and busts that the American economy (and thus, the global economy) has experienced over the past 37 years have been due to the floating U.S. dollar, the value of which changes continuously and has fallen dramatically since 1971 when Republican President Richard M. Nixon effectively broke the 1944 Bretton Woods Agreement by reneging on the gold-redeemable, fixed U.S. dollar upon which the post-WW II world financial order was based. Since then, the floating U.S. dollar and Fed-driven growth in the U.S. money supply are the double-whammy that repeatedly leads investors to ‘irrational exuberance’ and ultimately, malinvestment and economic crisis – the likes of which we are witnessing today.
The solution to this systemic problem is a return to a fixed U.S. dollar, regardless if it is redeemable or nonredeemable for the gold ounces in the Federal Reserve’s reserves. As is stipulated in Article 1, Section 8 of the U.S. Constitution, the U.S. Congress should immediately redirect the Federal Reserve to manage the U.S. money supply according to a fixed gold price instead of according to the fed funds rate or any other interest rate under the Fed’s own control. That way, every American and every foreigner will know – and trust – the value of the U.S. dollar because it has a fixed reference point in gold ounces. The actual reference point chosen (1 USD = 1/1000th of an ounce of gold?) doesn’t so much matter as the fact that a reference point is chosen and that the reference point doesn’t change for many years to come (if ever).
Such a change in U.S. monetary policy should minimize disastrous booms and busts going forward. It is the type of monetary policy that led the U.S. to economic greatness from 1900 to the late 1960s. It is the same monetary policy that can help solve our current economic problems and can lead the U.S. to still greater economic results for all Americans. All policymakers in Washington, D.C. need to face the facts: America’s grand experiment with a floating dollar since 1971 has been a complete and utter disaster. Please take action today to help summon the courage among your fellow Republican Congressmen to add this very important change in U.S. monetary policy to the current Republican proposal. It is the one change that would help put all this economic madness to rest once and for all.
Thank you,
Logan Flatt, CFA
Dallas, Texas 75230
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This article has 6 comments:
When Dick Nixon slammed the gold window in 71, he did it to pay for the Viet Nam War, setting the precedent for "debt without tears". The Fed govt has been at it ever since. Other countries have been complicit in this, else the USD wouldn't be the defacto reserve currency. What would an IMF audit reveal? Probably result in a USD devaluation to 10% like some third world country. Other possibilities are SWF demanding repayment and crushing the dollar. Or what the Feds are up to now, monetizing the debt gradually so we don't know we're cooked.
Keynes said gold is an anacronism. He probably erroneously thought laws would suffice to ensure fiscal responsibility. We couldn't even get a balanced budget amendment passed. Gold may be a barbaric relic, but it's simple and it works.
1. United States population 300,000,000.
2. Population over 18 years old 220,000,000
3. national Debt US$ 10,000,000,000,000
4. share of debt per person US$ 33,000
THE PROBLEM .
1. No health coverage for Americans
2. unemployment
3. bad economy
4. energy dependence
5. housing crash
6. credit crunch
7. Retirement funds decreasing
8. unable to stop overspending.
9. ETC, ETC , ETC.
CURRENT PROPOSED SOLUTIONS
1. Stimulus package
2. save Wall Street , save the Auto makers , Insurance companies , Mortgages ,extend unemployment benefits . tax cuts for the middle class .
PROJECTED OUTCOME.
Just a patch , the economy will still tumble down increasing national debt and unemployment.
THE SOLUTION.
Only the consumers can save the economy .
THE PLAN.
1. Give each American over 18 years of age , regardless of credit history or financial status rich or poor , a government issued credit card for $1000.00 or less , to start a credit system with the government at 10% interest per year . This credit card is tied to each Americans social security , and is the point of contact between the government and the people . according to payment history and payment ability their credit will grow . This credit card can not be bankrupt or not paid . it will be discounted from social security if necessary . The idea is that everyone will want to have a perfect credit , why?.
1. access to more money even to buy a house when their credit is built in a few years .
2. The interest charged will be used to pay for :
1. universal health care
2. national debt.
3. Creation of wealth for our country .
This is money that has to be spend for America . It will grow enough to pay for insurance for all , our national debt will decrease .
Let each company fix their problems . A credit system like this will help the country for decades to come. The money will always come back to the source tenfold .
That’s 22 billion per year on the initial credit given to people . On time the national credit will be in the trillions of dollars. The interest generated pay for the national debt in a short time .
.
Thank you for reading
jfp
It's a novel idea, but it's based on a false premise: there is no such thing as "each American's social security". The U.S. social security program is a transfer payment scheme, not an insurance policy or a financial asset available to serve as collateral for credit lent upon it.
Through Social Security, the young work today to pay for the lifestyles of their retired elders today. Every pay period, money is simply expropriated from the younger generations' paychecks by the government and then the government turns around and redistributes those same funds in checks mailed to the elderly in the same or next pay period. Therefore, there is no asset accruing to the credit of the young upon which such a credit card could be based as collateral. They pay into a system today with no guarantee that the system will be there for them tomorrow.
In short, the young today simply will be dependent on the youth of tomorrow -- that is, if there are enough youth tomorrow to support the severely flawed transfer payment system that is U.S. Social Security. The actuarial models suggest that the entire Social Security system could break down as the "baby boomer" generation reaches its retirement peak and the elderly boomers absorb far more in payments than there are youthful workers having a sizable chunk of their earnings expropriated from them by the central government. More than likely, the central government will simply expropriate a larger and larger chunk from the youth over time. If I were younger I'd be revolting in the streets of Washington, D.C. at the prospect of such a dismal future created by this archaic 'New Deal' transfer payment program of yesteryear. For the young it's going to be more like a 'Raw Deal' program.
Finally, a credit card is not a great idea because a credit card only creates a financial liability for he or she who uses it. What the U.S. needs is more Americans owning financial assets that build wealth, not creating ever more financial liabilities or other obligations for themselves and the estates their families stand to inherit. It's a far, far better thing to be an owner of assets than an "ower" of debts!