Three words to fix our monetary system: End. The. Fed.
Choppy week in the markets, wouldn鈥檛 you say? Gap down one day, gap up the next. That鈥檚 what you get when the tub is full of Fed-faked funny-money. Bigger waves鈥ore tumult鈥ess predictability. And a whole lotta motion sickness along the way.
Markets are always and forever in a process of price discovery, torn between demand for lower prices from buyers on one side, and the profit motive from sellers on the other. Somewhere in the middle, the two parties will come together to exchange their goods and services. In other words, they 鈥渄iscover鈥� an agreeable price at which everyone finds value. This is what the free market does naturally. Low prices invite demand鈥riving prices higher. High prices invite competition (supply)鈥riving prices lower.
Obviously, therefore, you expect a bit of movement, a bit of price fluctuation as buyers and sellers jostle for position. What you don鈥檛 expect is multi-hundred point daily swings in the stock markets. You don鈥檛 expect gold to jump $20, $30 or more in a 24-hour period. (Remember, before FDR confiscated all the gold in the land back in 1933, an ounce of gold was only 鈥渨辞谤迟丑鈥� $20. More correctly, a dollar was worth 1/20th an ounce of gold. Then, in one fell swoop, the original New Dealer 鈥渞evalued鈥� the metal to $35 an ounce, thereby devaluing the dollar to 1/35th an ounce of gold.)
The point is, a $20 or $30 movement in the price of gold back then would have been unthinkable (but for political strong-arming). Today, with the dollar having been beaten, bludgeoned and fisticuffed down to less than 1/1,500th an ounce of gold, twenty bucks here or there is hardly worth mentioning, such is the woeful state of the world鈥檚 leading fiat money.
Of course, markets don鈥檛 demand fiat currencies. Free individuals don鈥檛 wake up one day and say to themselves, 鈥淕ee鈥� Wouldn鈥檛 it be nice if we had an unquestionable, unaccountable, centrally controlled monopoly on counterfeiting to help debase our medium of exchange, saddle the populace with that most insidious of all taxes 鈥� inflation 鈥� and to sell our kiddies future down the drain? I know, let鈥檚 create a Federal Reserve!鈥�
Such institutions don鈥檛 come about 鈥渘aturally.鈥� They require political pull and the gun-for-rent that is the government. They take cover behind rooking legalese, as is found in 鈥�,鈥� and the absurd prevarications of its 鈥渄ual mandate,鈥� which is, at present, sold to the terminally credulous public under the noble-sounding, though entirely erroneous mission statement of 鈥減rice stability and maximum employment.鈥�
Anyone with a basic, non-Ivy League-approved understanding of economics knows this to be a ridiculous goal in the first place. For one, gold takes care of price stability itself. Has done for thousands of years. Price instability is the direct result of fiat monies and manipulation of the money supply by self-serving central banking cartels. From tulipmania to techmania, one can find, at the rotten heart of every inflationary crisis, a central banker with an equally rotten brain and/or heart.
As for the 鈥渇etish of full employment,鈥� as Henry Hazlitt so eloquently explains in his classic, Economics in One Lesson:
鈥淭he progress of civilization has meant the reduction of employment, not its increase. It is because we have become increasingly wealthy as a nation that we have been able virtually to eliminate child labor, to remove the necessity of work for many of the aged and to make it [financially] unnecessary for millions of women to take jobs.
鈥淭he real question,鈥� continued Hazlitt, writing in 1946, 鈥渋s not how many millions of jobs there will be in America ten years from now, but how much shall we produce, and what, in consequence, will be our standard of living?鈥�
The Fed is the work of Woodrow鈥 creature of Congress. As George F. Will, writing in The Post, once put it, mission creep is part of the 鈥渕etabolic urge鈥� of government agencies. The Fed is no different. It is an Ouroboros running out of tail on which to feed. There鈥檚 nothing free market about this beast, Fellow Reckoner鈥nd nothing free market about the economy that stands on its sunken shoulders.
Without space for competing currencies, the invisible hand is bound and cuffed, unable to feel around in the dark, to set reliable prices. Value is distorted, malinvestment promoted.
In the end, you get unpredictable stock market volatility and a dollar shaved to within 1/1,500th of its life. Exactly what you鈥檇 expect, in other words.
The solution? Here, a modest suggestion:
贰苍诲鈥丑别鈥别诲.
Instead, allow competing banks to issue competing currencies. Allow the fundamental underpinning of an economy 鈥� it鈥檚 medium of exchange 鈥� to discover its own 鈥渇air value.鈥� Witness competition weed out banks that lend imprudently and that rip off customers, to the favor of those operating with prudence and fiscal integrity. Watch institutions that choose to issue baseless, paper money go bust without federal bailout funds and those that adhere 鈥� freely, without let or hindrance 鈥� to a gold standard garner the public trust their thrift and judiciousness earns them.
Wishful thinking, you say? Well, until such a time comes to pass, here鈥檚 another suggestion, courtesy of our Reckoner-in-Chief, Bill Bonner:
鈥淏uy gold. Be happy.鈥�
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