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Tags: inflation | currency reform | gold standard

Inflation Cure Without Recession? Currency Reform

a gold colored dollar sign in a vice
(Dreamstime)

Ralph Benko By Tuesday, 04 January 2022 08:16 AM Current | Bio | Archive

Inflation.

Shame to open 2022 on a downbeat note. Forewarned, however, is forearmed.

Inflation is a greater threat than a regnant China (who might be the rival America has long needed). It’s worse than climate change which some well-respected experts predict will cost the world less than 3% of its GDP, 80 years hence. Not insignificant but not catastrophic.

Alas, both Democrats and Republicans as well as most of our professional economic thought leaders are getting the cause and cure of inflation wrong. And as Mark Twain famously never said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

As for the Donks, the Biden White House’s blaming rising prices on Big Business? Keynes, himself no Keynesian, likely would have been horrified at such economic nonsense.

The young John Maynard Keynes well understood inflation’s bad money basis. In his 1919 breakthrough classic The Economic Consequences of the Peace he wrote, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction. …”

Wait. It gets worse! The Pachyderms are loonily indicting federal spending as inflationary, ignoring Milton Friedman’s profound (and true) dictum, “Inflation is always and everywhere a monetary phenomenon. ...” Profligacy’s a bad thing. Yet not an inflationary thing.

Inflation is busting out over much of the world, see here, there, and everywhere. So, inflation obviously has nothing to do with U.S. federal government spending. Rather, the Fed, under White House pressure, has been weakening the dollar, the world’s reserve currency. Voilà: inflation.

We need not rely on mere appeals to authority or circumstantial evidence. Politico recently published a resounding vindication of the morally courageous anti-inflationary stance of former regional Fed bank president Thomas Hoenig.

“Between 2008 and 2014, the Federal Reserve printed more than $3.5 trillion in new bills. To put that in perspective, it’s roughly triple the amount of money that the Fed created in its first 95 years of existence. … Hoenig was the one Fed leader who voted consistently against this course of action, starting in 2010. … He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system. On all of these points, Hoenig was correct.”

Sadly, our Democratic, Republican and technocratic leaders seem oblivious as to both the cause and historically proven healthy cure for inflation without recession. What is that cure?

Currency reform.

What’s that? One great example is that of Germany after WWII. Germany was a bombed-out ruin, widely believed doomed to poverty pretty much forever. How did West Germany, against all odds and in the face of expert pessimism, become the economic powerhouse of Europe?

The socially-conscious free market Ludwig Erhard, acting against all expert advice, introduced currency reform and abolished price controls. He did so on June 19, 1948. This instantly produced the Wirtschaftswunder, the “German Economic Miracle.”

As Erhard wrote in Prosperity through Competition:

“Jacques Rueff and Andre Piettre, summed up the combination of economic and currency reform thus: 'Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future.'”

Or as the distinguished (later Fed governor) Henry C. Wallich observed, "The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life.'"

Good money is fundamental to equitable prosperity. And, properly understood, it’s really not hard to do.

So, what now? The evidence, most recently compiled by Peter C. Earle and William J. Luther’s superb The Gold Standard: Retrospect and Prospect, is persuasive that restoring the classical gold standard would be the optimal currency reform.

Whether or not one agrees on the gold standard, all signs point the way to subduing inflation, without inducing a recession, lies in currency reform. Sadly, our political class is oblivious.

What to do? Email a link to this column to your congressperson. Then cross your fingers.

Then, if ignored, buckle up for a bout of stagflation and attendant penury. If, against all odds, they listen?

Onward to a golden age!

Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply-Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $94T. Read Ralph Benko's reports — More Here.

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RalphBenko
Inflation is a greater threat than a regnant China (who might be the rival America has long needed). It’s worse than climate change which some well-respected experts predict will cost the world less than 3% of its GDP, 80 years hence.
inflation, currency reform, gold standard
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2022-16-04
Tuesday, 04 January 2022 08:16 AM
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