The Federal Reserve Bank of Kansas City (Fed) met in Jackson Hole on August 28-29. Annually a bunch of egghead economists try to impress us with their knowledge of how to direct monetary policy. They promise us free Bubble-Up and free Rainbow-Stew because of their smarts.
This year they had competition. The American Principles Project hosted the First Annual Jackson Hole Summit entitled “Central Banks: The Problem or The Solution”. You can watch replays on website JacksonHoleSummit.org. It was held at Hotel Terra in Teton Village and at Diamond Cross Ranch in Buffalo Valley. This cowboy had the privilege of attending to hobnob with the elite. Speakers included world-renowned economists and legislators from as far away as New Zealand and Great Britain. Presenters showed graphs and charts proving the Federal Reserve has failed miserably. Our economy is stagnant. This is the longest and weakest recession recovery ever.
The speakers said our nation’s budget must be balanced. They recommended tying the value of the dollar to gold. Lawrence White, Professor of Economics at George Mason University, said the story, “The Wizard of Oz”, was written about the Federal Reserve—the “Wizard”—and an ounce, “Oz”, of gold. “Follow the Yellow Brick Road” was the “way back home”, the gold standard.
Taking the dollar off the gold standard, which Nixon did in 1971, had a devastating effect on the value of our currency. Ten years later Congress determined the move was excessively inflationary. In spite of the conclusion, a slim majority voted to continue the policy.
But Fed Chairman Paul Volker was listening. He began a de-facto policy of tying the dollar to gold at $350 per ounce. When gold rose above that, he sold gold. When gold dropped below $350, he bought gold to stabilize its price. Volker also allowed the interest rate to adjust based on demand. Because of those policies, for the next 18 years we had dynamic growth in our economy. Then in 2001 those policies were reversed, with resulting stagnation, very slow growth, and loss of real income.
A chart by Rich Lowrie was distributed proving conclusively, “Supply-side tax cuts work. They did exactly what they were expected to; lift the income of everybody. They delivered the only income growth in 30+ years to the striving majority.” Other speakers proved the zero interest rate policy of the Fed for the past six years has been counter-productive, increasing the gap between the haves and the have-nots.
Peter Schiff, a prominent financial analyst, summarized the Fed actions; “The Fed knocked the legs out from under the economy. Everything they have done has exacerbated the problems they set out to solve. This not a recovery. The whole thing has been a bluff. The Fed is afraid if they raise interest rates and it works, that will prove they didn’t know what they were doing for 9 years. They should raise rates now because the bubble needs to be popped now! They’ve kicked the can down the road and we have finally caught up with the can. A bigger bubble will mean a bigger crash.”
Speaking of crashes, my Dad told us about growing up in the Great Depression; “We were so poor our parents would give us a nickel if we would go to bed without our supper. Then when we were asleep they would steal the nickel back to give to us the next night. It was the only nickel they had. When we complained they said the Tooth Fairy had also fallen on hard times and had repossessed the nickel. On Christmas Santa couldn’t even afford reindeer. He had to walk from house to house, dragging his bag of homemade toys behind him. Our Christmas tree was just an old sagebrush decorated with deer droppings, painted to look like Christmas ornaments.” But I digress.
The solution to our nation’s economic crisis has been tried and it worked. Maurice McTigue, former member of the New Zealand Parliament, told how New Zealand had to make hard choices to turn their bankrupt economy around. “When we started our reforms government controlled almost everything. We changed almost every aspect of government. Inflation went from 19% down to 2%, interest rate from 25% to 5%, unemployment from 11% to 5%, and debt from 66% of GDP to 10%. We balanced the budget. All subsidies were eliminated. We eliminated government departments. I was Cabinet Minister of Works. My department went from 28,000 employees to 1. Forest Service went from 17,000 employees to 17. Government dependency was reduced to only 30% of previous. Schools were changed to charter schools. Now only parents can vote on school policy. Countries have to bite the bullet and do it. New Zealand did it. America can do the same.”
These Summit economists said if we fail to enact similar measures, our Federal Reserve Notes won’t be worth the paper they are printed on. I, your common sense cowboy, doesn’t believe they will be totally worthless. I’ll keep a wad of them in my saddlebag for when nature calls.
“Remember, life is always better when viewed from between the ears of a horse.” Jonesy