While many are looking to the Federal Reserve to navigate the country out of the market turmoil and economic uncertainty and into calmer seas, the Fed really helped to create the problems we're seeing today in the first place, says publisher and one-time GOP presidential hopeful Steve Forbes.
"The Fed helped create the problem by trashing the dollar starting in the early part of the last decade. So the biggest thing in the Fed's arsenal toolbox today is to not continuing to weaken the dollar but actually to strengthen the dollar — tie it to something like g-o-l-d. They'll never do that but eventually they'll be forced to do it," Forbes tells CNBC.
Forbes and others have been calling for a return to tying the value of the dollar to gold, which would take away flexibility but also prevent monetary and fiscal policies to allow the government to live beyond its means.
Such policies ended in the early 1970s.
"The weak dollar and the weak euro in its wake have been devastating."
Taxes, meanwhile, need overhauling, and whoever occupies the White House after the 2012 elections will need to carry out some major remodeling of how the government collects revenue.
"Another thing that's going to have to be done, and I think it's going to happen after the 2012 elections, is a major overhaul of the tax code with something like the flat tax and the repeal of Obamacare."
Standard and Poor's downgraded U.S. debt ratings to AA-plus from AAA on concerns that the nation's leadership has been unwilling to seriously tackle gaping deficits and debt burdens.
Wall Street tanked on the news, with the Dow Jones Industrial Average falling over 600 points during the first trading session after the Standard and Poor's announcement.
Some say the Fed's policy of keeping interest rates low and the dollar weak helps the economy by boosting exports and making it easier to service debts and engineer growth, although it does pressure inflation rates upward.
Monetary policy, Forbes says, won't bring the country out of its economic hole.
"It's a very destructive way to get out of it. A more constructive way is to create conditions for growth as we did in the early 1980s. And that means having a stronger dollar, fighting inflation," Forbes says.
"It means having a tax code that is pro-growth instead of anti-growth and it means peeling back regulations, including what is coming from Obamacare and Dodd-Frank."
"When you create more growth you have more assets, which makes it easier to deal with the debt."
The Federal Reserve can arguably calm markets by hinting that ultra-low interest rates will stay lower for a longer time or by stock up its portfolio with assets that carry longer maturities, which could fuel stock-market gains.
While such moves may seem mild compared with previous Fed actions, such as outright purchases of assets with printed money — known as quantitative easing — but they still might receive welcome from the country's embattled capital markets.
"I don't think the Fed can stand by," says Mark Zandi, chief economist at Moody's Analytics, according to the Associated Press.
"This is a crisis of confidence and the Fed needs to shore up confidence."
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