Dr. Friedman stood firm under
repeated questioning by Mr.
Rose that nothing iswrong, the
economy is in great shape, that
hte level of debt, private, local
state and Federal is not a
problem, and the Fed under
Alan Greenspan did a great job.
To rephrase Mr. Friedman's
statements, the Fed has done a
great job, along with central
banks throughout the world,
monopolizing the banking
system and centralizing the
decision of what interest rates
should be wintin countries and
between countries. The Central
banks, through worldwide
inflation have rewarded debtors
and punished savers and
financed through debt
mechanism the wars of the last
eighty years.
Dr. Friedman has been a great
hero in the intellectual war
against collectivism. In order to
do this he chose to do battle
with those who favor loose
monetary policy. Unfortunately,
for some reason, he has failed
to take up the guantlet against
the entire concept of the
centralized control of monetary
policy, now that the war against
collectivism has been won, at
least for this generation, the time
to take on the central planning
of monay has come. Otherwise
the inevitable failure of
Kremlinesque monetary
management will be again
confused in the publics mind as
the filure of free markets, and
the War against collectivism will
reignite. Perhaps, as younger
man, success required
remaining silent about the fraud
of central planning the financial
heartbeat of the economy. And,
perrhaps, he, like a great retired
general, is not willing to fight the
next war.
Charlie Rose seems to have to
picked up a little of Bill Bonner,
and tried to question the good
Doctor, but did the job with
repitition and not with probing...
At what level of debt relative to
GDP does the economy
become unstable and subject to
deflationary forces. At what level
of monetary inflartion do the
participants begin to suffer from
the results of malinvestments, or
inequities due to malinvestment,
or inequalities in access to
centrally controlled credit. At
what levels of monetary inflation
do foreign holders loose affinity
for a depreciating currency. Will
decreases in offshore
preference for holding dollars
result in a declining exchange
value for the dollar and will this
potential cause upward price
pressures domestically. Charlie
Rose is a brilliant intellectual with
a breathtaking range of
interests, therefore one cannot
expect him to ask Friedman the
tough questions.
I only wish the good Doctor and
his fellow traveller Derek were
correct. But they are not. Total
debt excceeds that in 1929. The
only way out is more inflation.
Inflation is cruel to the old the
sick and those less capable of
extending thrift beyond a
savings account. The ravages of
inflation are the greatest
justification for Socialism.
The trade imbalance and job
exporting can be justified by all
kinds of handwaving and xyz
account hocus pocus, but the
fact remains, When Joe six pack
goes to Wall Mart and plops
down two grrand on that home
entertainment system to fill a
room somewhere in the cavern
of the Mc Mansion that he
bought for nothing down with a
variable rate mortgage, that one
grand of that soon lands in the
hands of the Asian
manufacturer. She then deposits
the one thousand dollars at the
local bank in exchange for local
currency to pay the workers,
suppliers and landlord of the
factory. The local bank shelled
out some local curency and took
in the thousand dollars, It sends
the thousand dollars to the
central bank in exchange for the
local currency it put out. The
central bank is now stuck with
this thousand bucks and it has
to come up with some local
currency to give to the local
bank. If the central bank were
playing by the rules, it would go
to the world currency markets
and sell the thousnad dollar bill
in exchange for local currency.
This transaction would add 1000
dollars to the pool of dollars
supplied to the worlds currency
market, and decrease the
amount of the local asain
currency supplied to the worlds
currency markets. This would
make dollars just a little more
plentiful and the local asian
currency a little scarcer. If
millions of J6Ps did this, as well
the banks did the right and
normal thing, then there would
be lots more dollars available for
sale in the international money
market and a lot less of the local
asian currency available, as it
was taken out of international
circulation and given to the
entertainment system maker.
Dollars would be plentiful, and
asian currency would be
scacer. This would make dollars
less valuable relative to asian
currency. This would, mean that
the next million customers at
Wall Mart would have to pay
higher prices for the home
entertainment systems.
But suppose the local asian
bank wanted to keep his
countries products cheap
Remeber when the central
banker got the thousnad bucks
from the local bank and had to
give the local bank some of the
local currency. Well lets say the
central bank just printed the
local currency up. Then the
central bank would not have go
to the world currency markets to
give up the tousand dollars in
exchange for his local currency.
But what should the central
banker do with his thousand
bucks now. He can just stick in
the vault, but that would not
collect interest. Or he can buy a
Fannie Mae bond, or Federal
Treasury bond for it. The
treasury can use money to help
pay for Jane six packs new
Federal job writing contracts for
private contractors to transport
suspected terrorists around, and
the falling interest rates from the
asian demand for fannie mae
mortages can help raise real
estate prices for joe six pack to
refi the mc Mansion and buy an
even bigger entertainment
system. Meanwhile, back in
Asia, the continuous monetary
inflation may go on for a long
time as the economy is
expanding at a rapid rate, but all
inflations eventually take thier
toll. By keeping the local asian
currency worth less, the labor in
that asian contry appears very
cheap. Thus many
manufacturing and service jonbs
migrate to that asian country.
Eventually the only jobs left in
the us will be for the government
or those who schlep the stuff
from Seattle to Wal Mart and
from the back to the fromt of the
store. Then with no real jobs left
here, Derek can tell us how it
will work out in the long run.
All I can tell you is that when
most of Europe was on the gold
standard from soon after
Napoleans fall to the eve of
World War i, the world was
largely peaceful and economies
well balanced. Gold is resistent
to manipulation by central banks
because it cannot just be
printed.Thus the rules of the
gold standard as provided by
mother nature and refined by Sir
Issaac Newton provided
balanced trade. The flow of gold
in the Walmart example can
easily be imagined by the
reader. I can go through it if
anyone asks. Or you can just
take my word for it, a world on a
free market money system
which would probably be based
on gold by consumer choice,
with perhaps some converability
to silver , copper, platinum and
paladium. anyway, this system
would allow free trade between
nations without the nefarious
interference of Central Banks,
and the the odd and
unsustainablee inbalances that
result, such as the monetization
of eyeballs, and then Mc
Mansions.
It's just a shame Dr. Friedman is
afraid to mention the G word.