Logan Flatt

How to Save the U.S. Economy: Kill 1971's 'Floating Dollar' Experiment

Jaimster -

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!

A Million Bucks Ain't What It Used to Be

Please do not be misled - this essay is not about "the gold standard" per se. It is about official government policy to devalue a currency, the government's track recording in following its policy, and what you as a citizen living under the power of that government and using that government's debased currency as a medium of exchange, store of value, and unit of account can do about it (complain to your elected officials or switch currencies).

Please also note that gold was chosen here for two very important reasons: 1) gold was used by the government itself to value (and, in 1934, to devalue) its currency historically, and 2) human beings have chosen gold over all other alternative currencies for over 5,000 years (i.e., way before you, I -- and today's economic intellectuals and pseudo-intellectuals -- were born).

Just because gold is not "en vogue" currently (or, at least, since the early 1970s) does not change the fact that gold has historically been the global currency of choice among human beings far longer than any single government-backed currency has been the global currency of choice among human beings. Sure, yes, today, it's the fiat U.S. Dollar. But, before that, it was the British Pound (the 1800s). And, before that, it was....gold. Today, gold is so out of style that even Switzerland -- the gold-hoarding, ultraconservative Swiss Central Bank that doles out the Swiss Franc -- sold off all its gold reserves in 2005. Now, THAT must be the watershed event of gold's rejection as currency in modern times. However, the U.S. government, mysteriously, still holds the largest store -- over 8,000 tons -- of gold in Fort Knox and in the basement of the Federal Reserve building in New York (Ever wonder why this is so given that gold is so unfashionable today?).

It seems the human acceptance of currency by government decree is all the rage these days. But, just because gold feels old fashioned to you in 2008, doesn't change the past 5,000 years. It all depends on your view of whether or not human acceptance of currency by government decree is an evolution of human behavior or a devolution of human behavior. I suggest that if you are not educated in these matters, you should educate yourself and then come to your own conclusion about human evolution or devolution in monetary policy matters. I for one think it better to err on the side of devolution at this time.