Today the economic crisis we endure is only the latest chapter in the century-long struggle to restore financial order, the success (or failure) of which is inextricably bound up with American prosperity and the promise of the American way of life. Between 2009 and 2011, we experienced an emerging market equity and economic boom. At the very same time, we experienced sluggish growth in the United States despite $3.5 trillion of Treasury and Federal Reserve subsidies to the banking cartel and favored corporations.
How could this be? The vast Fed credit creation of 2008 to 2011 could not be fully absorbed by the U.S. economy. Real economic growth was pre-empted by the drive for solvency and debt repayment.
It is too easy to forget that the newly created money by the Fed primarily flooded into U.S. stocks, bonds and the dollarized world of commodities, rescuing and enriching the banker and speculator class.
Excess Federal Reserve credit and money also cascaded offshore, igniting a fall in the dollar, and the emerging market financial and economic boom.
Fed-created money is not associated with the production of new goods, services and equities. Therefore, during the global market period in which the Treasury and foreigners spend the newly issued central bank credit, total purchasing power must exceed the total value of available goods and services at prevailing prices. Prices must rise when total demand exceeds total supply.
Sustained monetary inflation is hidden from the vast majority of working people. Over many cycles, the social effects of inflation, financial disorder and the overvalued dollar have intensified inequality in America.
The prudent middle class on Main Street is dispossessed; the reckless on Wall Street, bailed out. Without incentives to increase true savings, new investment will continue to depend increasingly on bank debt, leverage and speculation.
Ours is the latest ugly chapter in a century of inflation and financial disorder. But, there is a historic American solution.
Historical and empirical data show that gold convertibility of the dollar, without reserve currencies, creates the least imperfect monetary standard, generating economic growth and price stability over the long run.
In monetary and economic policy, there is only one laboratory for experiment, the laboratory of empirical evidence in human economic history.
During the unique Industrial Revolution, a supple and subtle set of gold-based credit institutions facilitated economic growth, job creation, a rising standard of living and a stable long-term price level.
How does America and the world get from here — a volatile, world paper-dollar standard — to there, a stable dollar?
The dollar must again be defined in law as a precise weight unit of gold, at a statutory convertibility rate which insures that nominal wage rates do not fall.
Indeed, nothing but a true gold standard without official reserve currencies will yield a real monetary standard for the integrated, growing, world economy of today.
Only such a common, impartial monetary standard can rule out manipulated, floating exchange rates and unconstrained central banks, the ultimate cause of intense inflation and deflation.
Today, undervalued currencies and currency depreciations are designed to subsidize exports and to transfer unemployment to other nations — to beggar thy neighbor — and, by means of an undervalued currency to gain market share in manufactured, labor-intensive goods.
If competitive depreciations and under-valuations continue, floating exchange rates combined with the U.S. budget and trade deficits will blow up the world financial trading system at regular intervals.
A stable dollar, established by the true gold standard, without reserve currencies, was and should be the cornerstone of American monetary stability.
Lewis E. Lehrman is chairman of the Lehrman Institute and author of “The True Gold Standard: A Monetary Reform Plan without Official Reserve Currencies, How We Get from Here to There.”
