A good word for Deflation.
We've said before - we'd really like to see James Grant appointed Secretary of the Treasury. His bow tie and abundant common sense would be tremendously refreshing.
Grant gave a talk to the denizens of the New York Federal Reserve on March 12 that surely flew right over the heads of most of his listeners. The Wall Street Journal printed a few paragraphs on May 7th and we have no doubt they flew right by the eyes of most readers. Jim Grant is used to having his words fall on deaf ears and under blind eyes.
He told the New York Fed to be less terrified of DEFLATION. . .and recognize it for what it is; a derangement of debt - a symptom of which is falling prices.
"In a credit crisis, when inventories become unfinanceable, merchandise is thrown on the market and prices fall. That's deflation!"
Grant reminded his audience that steadily declining prices were the norm between 1875 and 1896. If there had been a modern-style Consumer Price Index then it would have gone down every year, on average, some 1.7 percent. What happened, he explained, was that technology was racing along at such a clip that it became possible to make things better and distribute them faster. Result? Efficiency = Savings.
James Grant's main point seems to have been: Look. You people are creating money bubbles every time a whiff of deflation is in the air, and it only makes matters worse down the road. You may have to let some bubbles pop and try to cleverly deflate others. But opening the currency floodgates will eventually lead us to the crippling kind of deflation we suffered in the 1930s. Who wants that?
We can note, here, that the Federal Reserve has done a phenomenal job of keeping price inflation rising every year since 1940, excepting for the little hiccups to the downside in 1949 and 1955. That's seventy-two years of price inflation! It's time to stop it before it reduces the dollar to complete worthlessness.
Just as the establishment doesn't pay much attention to Jim Grant, it ignored the South African monetary authority Dr. John E. Holloway. His was one of the sensible points of view during the horrible burst of inflation in the 1970s. In April, 1975, he wrote:
"Just as it is the duty of the State to maintain just laws as the basis for the Rule of Law, it is the duty of the State to maintain honest money as the basis for the economic health of the community."
Was he wrong? We all seem to believe that the Rule of Law is sacred and that it's the business of judicial bodies to see that justice is dispensed in an even-handed manner. The blindfolded lady depicted at the courthouse is holding a balance scale. That familiar image clearly states the responsibility of the justice system.
Why do we permit the government to scam us by operating a dishonest money system? It has gone so far that Congress is now examining the possibility of removing all the costly metals (nickel, copper, zinc) from our circulating coins and switching to cheap steel. Moreover, one plan being mulled calls the Treasury Department to draw our present coins from circulation and sell them for scrap. If that isn't a clear signal to citizens to hoard cents, nickels, dimes, and quarter-dollars by the fistful we don't recognize opportunity when it's banging on the door.
We're reminded of the German preacher in early 1920s Germany who foresaw paper money flooding the economy. Through habit many in his congregation still put coins into the collection trays and these he carefully accumulated, replacing their face value with paper marks for deposit in the church's bank. By the time hyperinflation stormed across Germany the preacher had a nice pile of coins he could take into the countryside to trade for eggs, milk, butter, and other necessities. They traded at their metallic value, not the number stamped on their face.
In 1975 Dr. Holloway was warning that adopting an honest money system was vitally important, but no one paid much attention. After all, he was calling for some austerity...which doesn't play well to this day.
"It will not be easy, and it will require sacrifice from all sectors of the community. The sacred cows of the 20th century will have to be slaughtered."
We failed to kill the sacred cows and they're wandering around the 21st century landscape requiring food and care that has bankrupted the treasury.
And to this our banker friends say, "But this is not the time to bite the bullet. Now is not the time to sacrifice. Just let us fine-tune this economy, get some more money flowing through it until it's really humming again and then....well, then we'll see about somehow making some adjustments to our out-of-control budget deficits."
Notice...no reference to re-establishing a system of honest money. How can we ever achieve justice without honesty?
John Wrisley - May 8, 2012
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