By Steve Forbes
From Forbes.com:
Lost amid all the fireworks in that CNBC debate of the GOP presidential candidates was the answer Texas Senator Ted Cruz gave to a question about the Federal Reserve, advocating that the dollar be tied to gold. Other than Ron Paul, who has long been a gold-standard advocate, and his senator son, Rand, no other presidential candidate has pushed serious monetary reform since yours truly ran 16 years ago. This is stunning, given the immense damage our central bank has inflicted on the U.S. and the global economy. In fact, few economists, politicians or pundits are even aware of the harm that’s been done.
The reason monetary policy is so fundamental is that the way we live and progress is through the transactions we carry out with one another countless times a day. Life would be chaotic and our standard of living far lower if weights and measures weren’t fixed–60 minutes in an hour, 16 ounces in a pound and 12 inches in a foot. We assume, for instance, that a gallon of gasoline is the same volume each day.
What most observers don’t understand–thanks to John Maynard Keynes–is that the same concept is true for money: It works best when it has a fixed value. Money makes the buying and selling of things infinitely easier. But when money’s value is unmoored, the economy functions badly. Certain sectors benefit–a weak dollar always creates a potent but false commodities boom–but most are hurt because productive investment shrinks. Investors and business executives don’t know what the value of the money will be when it’s time to be paid back–a 100-cent dollar, a 10-cent dollar, etc. Uncertainty always dampens risk-taking. Without robust risk-taking an economy stagnates–and so do people’s standard of living.
Since the early 2000s the policies of the Fed have been toxic, first weakening the green back and then, since 2013, inadvertently strengthening it. Like a watch that runs either too fast or too slow, a yo-yoing dollar is disruptive, hurting innovation and the creation of new businesses.
Photo Credit: Gage Skidmore