We need a jobs policy to get us out of the depression

Posted on January 31, 2012 by Ralph Metzner

In an article published in Vanity Fair (Dec 21, 2011), Joseph Stiglitz, professor of economics at Columbia University, recipient of the Nobel Memorial Prize in Economics, former Chief Economist of the World Bank and author of Globalization and its Discontents (2003) takes a different tack, arguing that monetary policy changes are not as important as a vigorous jobs policy.

It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997. …

Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health. The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didn’t really recover—output is barely greater than it was before the crisis, and the job situation is bleak. …

But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation.

The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. …

Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.

Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.

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As gold price slowly climbs toward $2,000 an ounce, many voices advocate a return to some kind of gold standard

Posted on September 27, 2011 by Ralph Metzner

Another powerful statement on  behalf of a partial gold standard was made by Judy Shelton
in The Weekly Standard, Washington, D.C.
 August 1, 2011.

As the truth-or-dare battle over raising the debt ceiling moves toward a resolution of some sort, we are witnessing a unique political moment… The dollar has been at the core of global finance since the end of World War II, as the preferred global currency for trade and capital transactions. One major benefit: It has enabled America to more easily borrow. …The dollar’s prominent role in global financial affairs makes it the most vital nonmilitary instrument of American power.

People take dollars in the expectation they will be able to use them in the future to obtain something of comparable worth. They place their faith not so much in the “credit of the U.S. government” as in the eventual capacity of America’s economy to yield productive output. As government-issued claims against our country’s future output accumulate, there is a hollowing-out effect, with financial capital drawn away from the real economy. Real economic growth happens when private investors take their chances on innovative entrepreneurs — not when they are induced to purchase “safe” government securities.

Fear of losing the dollar as a meaningful unit of account has lately forged a curious confluence of interest among unlikely parties. …This makes for an unexpected coalition for monetary reform. The decline of the dollar is linking the economic anxieties of Americans — on Main Street and Wall Street — with profound concern elsewhere in the world over whether America will continue to exercise global leadership.

What gold brings to the monetary table is discipline. If individuals suspect that money is being issued in excess of levels warranted by legitimate economic needs and growth prospects, they can exchange their currency holdings for gold at a pre-established, fixed rate. Gold convertibility ensures that the money supply expands or contracts based on the collective assessment of market participants — as opposed to the less-than-omniscient hunches of central bankers. …Under a gold standard, money regains its primary purpose as a vital tool of free markets instead of serving as a corrupted instrument of government policy. Genuine economic growth — as opposed to the money illusion of artificial wealth reflected in bloated equities or housing prices — is no longer sacrificed to monetary policy encumbered by the fiscal failures of government.

We have learned from the European Union’s experience with the euro this past decade that major benefits can be derived from eliminating price distortions caused by fluctuating currencies; unfortunately, the lack of fiscal discipline among participating eurozone nations now threatens the entire system. As with the dollar, the ability of eurozone governments to borrow money to cover nonproductive deficit spending — and then convert government-issued debt obligations into a component of the monetary base — undermines the credibility of the currency. Robert Mundell, the Nobel laureate in economics who laid the theoretical groundwork for the euro, suggested recently that the world could move forward to a better monetary system by tying the U.S. dollar and the euro to each other and also to gold.

Americans are more cognizant now of the inverse relationship between the spot price of gold and the perceived value of the dollar. Far from inclining toward naïve provincialism or embracing rigid dogma, the growing number of citizens who purchase gold — in physical form, or through exchange-traded funds — testifies to increasing savvy. Tired of falling for the ruse of putting dollars into savings accounts at near-zero rates of interest, many opt to purchase Treasury Inflation-Protected Securities to avoid getting burned by dollar debasement. Which raises the question: Why should we have to game the future value of our own currency? Why can’t we just have money that works?

The fact that legislation has been introduced in 13 states to allow gold and silver to function as legal tender indicates broad dissatisfaction with the Fed’s stewardship of the dollar. …Anyone who believes that the effort to reaffirm a gold link for the dollar is politically quixotic was not paying attention when Sen. Jim DeMint questioned Fed chairman Ben Bernanke at a hearing earlier this year. Making reference to a 1981 proposal by Alan Greenspan, published in the Wall Street Journal, that the Treasury issue five-year notes payable in gold or dollars, at the option of the holder, DeMint asked: “Have you given any thought to the idea of issuing bonds payable in gold that would begin to create some standard for our currency?” Bernanke demurred, observing that a gold standard was no “panacea,” yet also conceding that “it did deliver price stability over very long periods of time.”

To read the original article: http://www.weeklystandard.com/articles/gold-standard-or-bust_577314.html?nopager=1

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Rep. Ron Paul’s campaign to unmask the secretive manipulations of the Federal Reserve

Posted on February 1, 2011 by Ralph Metzner

Toward Sensible Monetary Policy

By U.S. Rep. Ron Paul
Monday, January 10, 2011

http://paul.house.gov/index.php?option=com_content&view=article&id=1816:…

Alone in the US Congress,  Representative Ron Paul has been waging a so far largely unsuccessful campaign to unmast the “wizards behind the curtain” of the Federal Reserve – a privately owned bank that avers it requires secrecy to steer the US government monetary policies. In the new congress he was given the chairmanship of a financial subcommitte in the House and can now conduct more public hearings, in his seemingly quixotic, but necessary campaign. Here’s a recent statement of his intentions:

I am pleased that I will be chairing the Monetary Policy Subcommittee of the Financial Services Committee, which has oversight of the Federal Reserve. Obviously, this position will facilitate my efforts to ensure that the Fed provides the American people with more information about what they have been doing with and to our money.

Not surprisingly, since my chairmanship was announced, apologists for the Fed have been recycling the old canard about how increased transparency threatens the Fed’s so-called political independence.

By independence, they are referring to the Fed’s ability to greatly impact the economy with virtually no meaningful oversight. We only recently learned that the bankers at the Fed were able to use the latest financial crisis to bail out Wall Street cronies and foreign central banks with billions of dollars that were created and wasted, instead of appropriated and voted on by representatives of the people.

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