By Chet Yarbrough
Narrated by Walter Dixon
“Currency Wars” is a disturbing book because it conjures a wolf to blow your house down whether made of wood, brick, or straw. James Rickards is telling us the sky is falling because we are in a war that cannot be won without returning American dollar$ to a gold standard.
The argument is that returning to a gold standard will create a level playing field for currency that will stabilize the economy and break down barriers to free trade; i.e. not free trade exactly but regulated trade. Somehow, currency backed by gold will be more stable than the full faith and credit of a government—really?
With gold at $1600 per ounce, if the dollar were pegged to gold, the value of gold would jump by a factor of 5 or maybe 10 so the rich can get richer and the middle class and poor can go fish.
Rickards argues that America has fought two currency wars in its history and is now in the middle of its third war; using weapons that cannot defend America from an economic collapse. He believes Bernanke misreads a primary cause of the depression; Rickards believes Bernanke is steering the U.S.’ economy into a ditch.
Rickards argues that “quantitative easing” is a road to hyper-inflation and economic calamity because it artificially stimulates the economy with newly printed money that has no intrinsic value.
Rickards suggests that the Euro crises are examples of currency instability and unpredictability in many battles being fought in the currency wars. His assessment is that political and economic interests of China and Germany are the only glue that keeps countries like Greece from economic collapse.
Rickards is an attorney and an economist. That makes him capable of structuring an argument about the economy with more credibility than a bumbling blogger. However, to this bumbler, Rickards’ arguments are specious. First, other economists disagree with Rickard’s considered argument about the gold standard, Ben Bernanke for one. Second, what evidence is there that one country’s decision to return to a gold standard will reduce economic conflict among nations?
Countries are run by different government philosophies, different national interests, and rely on different economic resources—how will creating a gold standard for currency in one country or all countries reduce conflicting self-interests?
The currency war will not be changed with a return to the gold standard; i.e. currency wars will continue and evolve based on whatever standard is used for currency to determine value. The gold standard is not a magic bean that can be exchanged for a milk cow. There is no bean stock or golden goose. Geo-political thinking and self-interest do not change because of a gold pegged American dollar. Currency conflicts will not disappear; i.e. they will re-set to commodity wars. America is as capable as any post-industrial nation to compete on that basis.
Rickards observes the trillion dollar “American Treasury Bill” hoard held by China and sees the sword of Damocles raised to slice America’s neck. Why would Jack (China) want to kill the goose that lays the golden egg? America is “Mr. and Mrs. Consumer” on steroids, even in a recession.
Currency wars are real but America has fought them before with results that have made it the bully of the world. Maybe America needs to learn how to be a little more humble rather than gamble on a currency play that has as much chance of causing as curing world economic collapse.