Fantasies And Duplicities

     I glommed this image from AoSHQ:

     If you’re old enough to remember the Ford Administration, you might remember President Gerald Ford’s ludicrous “anti-inflation” campaign. To be fair, he’d been left with a considerable problem after Richard Nixon resigned the presidency. By “closing the gold window” against European holders of American dollars, Nixon triggered the first of what would be a long series of crashing waves against the world’s “reserve currency.” But then, as Americans were still forbidden to own gold except in the form of jewelry, most people had no idea what Nixon’s fateful August 15, 1971 declaration would mean to them.

     The inflation, you see, had already happened some time ago. It was made inevitable by the 1944 Bretton Woods Agreement, at which the major industrial and commercial powers agreed to use the American dollar as the world’s “reserve currency,” implicitly abandoning all commodity standards (e.g., gold or silver). Washington then proceeded to inflate – i.e., to expand the supply of currency and credit – at an unprecedented rate, impelled by the great expense of the Vietnam War and the maintenance of America’s NATO forces in Europe. What faced President Ford was a wave of price increases fueled by that inflation: foreign holders of dollars, aware that the Federal Reserve had flooded the world with newly made dollars that could no longer be exchanged for gold, scrambled to get some value for them in the form of American-made goods. That caused the first great surge of price increases of the Seventies, including the infamous 1973-74 quadrupling of oil and gasoline prices that stung American homeowners and drivers.

     President Ford was helpless before the torrent of dollars “coming home.” He could do nothing meaningful about the price increases they propelled. But as politicians from time immemorial have said to themselves – especially when they’ve faced a tough re-election campaign – he muttered “I’ve got to be seen doing something about it.” –

     President Ford couldn’t admit that the government itself was responsible for those price increases, now could he? It would have made him look bad. And as for admitting that there was literally nothing anyone could do about the matter, that would have been even worse: fodder for Jimmy Carter’s campaign. And so began the farcical “Whip Inflation Now” campaign festooned with lapel buttons, baseball bats, and absurd “public service pitches” exhorting private citizens to economize, though ordinary Americans had had no role in creating the problem.

     At no point did Washington cease to inflate and spend recklessly. And so the first of America’s great inflations was upon us. Remember 13.5% mortgage rates and 20% personal loan rates? I do; I was trying to buy a house at the time.

     The price of gold shot skyward as foreign holders of dollars sought to protect some of their holdings in the most reliable of all monetary commodities:

     Note how the price of gold has moved in response to changes in federal spending, especially on wars. The Reagan Administration, though it was a “big spending” era, moderated the value of the dollar with low-tax, pro-growth economic policies. The price of gold remained (relatively) stable by matching the explosion in the supply of currency and credit with an explosion of American productivity: the supply of goods and services rose roughly in tandem with the supply of money. However, the Nineties and Oughts saw the end of that progression, along with sharp increases in federal spending, especially on the wars in Afghanistan and Iraq. Gentle Readers with an interest in money and currency will be aware that gold prices have exploded still higher since 2015. An ounce of gold currently sells for $1965.00 – if you can find someone willing to sell one to you.

     This year will see the largest federal deficit, and therefore the largest annual creation of new currency and credit, in American history. It’s currently projected to pass $4 trillion. If you haven’t yet bought any precious metals – and can find someone willing to sell some – I’d advise you not to wait. Those “Whip Inflation Now” buttons won’t do you any more good than they did in the Seventies.