By Marilyn Barnewall
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.”
That sounds like some conservative extremist, doesn’t it?
Who is the last person in the world you would expect to make such a statement? How about the man most responsible for printing more dollars?creating money without gold backing it?than any other human being in history? The quote comes from Ayn Rand’s publication, The Objectivist. Alan Greenspan, Chairman of the Federal Reserve, wrote those words in 1966.
For those of you who have read The Fountainhead and Atlas Shrugged, Ayn Rand is known for her anti-collectivist (anti-socialist) philosophies.
Mr. Greenspan had more to say in that long-ago article.
“If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods.
“The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves,” Greenspan concluded.
Having gold removed as the base of our currency certainly achieved that objective. There is no protection against lost assets caused by inflation or against over-printing dollar bills until our currency loses its value.
In essence, Greenspan said that deficit spending is simply a scheme for the confiscation by government of private wealth. Having a currency tied to gold stops this legal?though immoral?government taking.
“It (gold) stands as a protector of property rights,” he said.
In 1933, it became illegal for Americans to own gold. The ban lasted 41 years, until 1974 when President Ford signed Richard Nixon’s legislation to make owning gold legal again. The penalties were pretty stiff: 1) jail time; and/or, 2) a $10,000 fine; and/or 3) a penalty of twice the investment’s value.
During the past year, the dollar has fallen 22 cents against the euro. During the past year, the dollar has fallen 22 cents against the euro. During the month of November alone, it went from 107.29 Yen to 102.18 Yen versus the dollar. A lot of people believe the dollar is still artificially high. Why? For one thing, when the trade deficit rises to over 5 percent of a nation’s gross domestic product (GDP), currency falls in value.
According to a study done by Caroline Freund, an economist for the Federal Reserve, when currency falls in value because of trade deficits, it usually drops by about 20 percent over a three-year period. America’s trade deficit is close to seven percent of our GDP, two percent over the five percent guideline.
When the economy is strong at home, foreign countries that purchase American goods must pay us more than they pay other countries with weaker currencies. As demand for our goods goes down, production of them also goes down. Jobs are lost.
We are three years into a five-to-seven year weak dollar cycle (some people say ten years).
Strong and weak dollar cycles have been:
Weak dollar from 1972 – 1978 (6 years)
Strong dollar from 1979 – 1985 (6 years)
Weak dollar from 1986 – 1995 (9 years)
Strong dollar from 1996 – 2001 (5 years)
If you’re going to London, be ready to pay $1.91 for each British pound (as of 12/31/04). Pound sterling is very strong against our weak dollar. Even volatile currencies like the South African rand is at a high against the dollar. According to Chuck Butler, President, EverBank World Markets, the expert on this subject, the 2004 low was 7.38 on 1/15/04. It closed the year at 5.66.
A confirmed financial story came out last fall stating Citibank closed all of its long dollar positions in mid-November. Citibank, one of the largest traders in global foreign exchange, is considered a bull on the U.S. dollar. If they become bears on the dollar, look for currency value difficulties.
Citibank currency analysts say they took this action because the Bush administration has imposed quotas on textile imports from China. Too, the dollar has failed to respond to all of the positive economic indicators (some people call them pseudo indicators).
The truth is, when you have too much of something – including the number of dollars printed – it’s value decreases. During his term, Mr. Greenspan has increased the money supply by more than all former Fed chairmen who preceded him, combined.
What do you think that has done and will do to the value of the dollar?
Looking at the bottom line, the dollar’s losses have more than erased the Standard & Poor’s gains since Thanksgiving 2003. We have more money to spend, but the dollars don’t buy as much.
Warren Buffet values total American assets at close to $50 trillion. You can calculate damage to the economy this way: For each half-trillion dollar trade deficit we suffer, we lose one percent of America’s wealth to foreign countries.
What will the Chinese do with their warehouses filled with trade deficit American dollars? Word has it they are going to pay us a visit and buy American companies. I guess we can’t call it outsourcing when they begin sending those jobs home, can we?
Marilyn Barnewall, in 1978, was the first female to be named vice president in charge of a major loan and deposit portfolio at Denver’s largest bank. She started the nation’s first private bank, resigned to start her own firm and consulted for banks of all sizes in America and other countries. In June 1992, Forbes dubbed Barnewall “the dean of American private banking.” Author of several banking texts, she has written extensively for the American Banker, Bank Marketing Magazine, and was U.S. consulting editor for Private Banker International (Lafferty Publications, London/Dublin). Article originally appeared in the Grand Junction Free Press. Marilyn can be reached at [email protected].