In my previous essay I introduced his book and talked some about what he was saying. As I noted a lot of what he says is on the money, though not completely for the reasons he says. Where he is right is when he as he says "zeros in on the skunk in the woodpile" (page xv) of AIG. It's a theme in his book. Time and time again the Federal Reserve, it's shill economists and the corrupt Security Exchange Commission (SEC) used the excuse of "protecting" the economy to bail out fat cats and protect their cronies on Wall Street -- at the expense of the economy and main street. But the common reality is that our modern Wall Street ran a multilayer and ongoing con on the American people. He traces it back to Roosevelt, which is not surprising considering he despises Keynes, despises Democrats and despises Roosevelt. But I'd trace it all the way back to Alexander Hamilton and the founding generation, and specifically what happened when Alexander Hamilton was removed from the scene and lesser lights took over his project. If I can I'll talk about some of the same subject but call it "Hamilton's Revenge" and discuss the subject from a very different POV. His shibboleth of "Good Money" is actually part of the problem. And the alternatives he seems to feel would save the economy are so unrealistic and crazy that they are the reason that the cons felt they had to run cons and fool people instead of come up with an economic approach that was fair to everyone.
In his opening paragraphs he despises Paulson's "150 billion one-time tax rebate", Noting:
"President Reagan's great accomplishment had been the burial of the Keynesian predicate: the notion that Washington could create economic growth and wealth by borrowing money and passing it out to consumers so they would buy more shoes and soda pop."
Which of course is a misrepresentation of what Keynes actually said. (Though he fleshes out that even Reagan hadn't buried that notion at all later in the book). He then proceeds to blame Obama's 800 billion stimulus for the red ink that in later chapters he will note had already been spilled by George Walker Bush. But I can forgive him for this. He's talking about his "road to Damascus" moment in realizing that the whole country was being swindled and conned by his colleagues on Wall Street -- which after all is where he worked as a private equity investor.
Then he lays out his "revisionist history of our era" blaming the whole thing, of course, on FDR and making a Neo-Liberal/Austrian case for the why's and wherefores of the mess:
"At the heart of the Great Deformation is a rogue central bank that has abandoned every vestige of sound money. In so doing it has enabled politicians to enjoy 'deficits without tears' by monetizing massive amounts of the public debt.
But I don't see this bait and switch reality as a switch that rewards politicians or common folks. It rewards Wall Street executives and a few mega-rich folks at the expense of a short term pile of debt that will eventually crash. Yes AIG was running a corrupt derivatives operation, but the "politicians" bailed out the monied class not the ordinary people. Yes, we did away with sound money, but we did away with "sound money" because it created centuries of deflation and depression for ordinary people and really didn't do that much for the rich except putting an artificial and weak check on banks, bankers and their ability to print money for free and lend it at interest. If "Sound money" had been such a great concept it wouldn't have been permanently abandoned. And if "Eisenhower in the White House" and "William McChesney Martin at the Fed" brought back "sound money and Fiscal Rectitude" it was by investing in good capital investments by creating our interstate highway system and not breaking much. Yes, defaulting on the "Bretton Woods gold standard" ... "was the starting point for the present era of floating money" and "massive debt creation" but Stockman, sociopath that he is, is blithely uncaring about the consequences of the alternatives. He describes a world of policy where Low wages and long hours are what the rest of us 99% should expect and only his class of wealthy investors and silver spoon legacy babies matter in deciding economic affairs. What he inadvertently is describing in his book is an investor/political class that shamelessly looks out for the top tiers of the investor/political class -- and doesn't give a snit about who gets hurt by their fights as long as they are paid in Gold. I would even agree that the collapse of fixed exchanges and the fake Gold standard of the Bretton Woods system was not an optimal situation. But his notion that a fixed rate alternative and the Gold Standard was a viable alternative is unrealistic.
The IMF notes about Bretton Woods:
"During the 1930s states had experienced a series of connected problems: shortage of gold, exchange rate instabilities, the movement of "hot" money in and out of their realms, and the lack of a mechanism to adjust balance of payments problems. The IMF was designed to deal with these difficulties by putting in place an international monetary system that contained a stable exchange rates regime with some scope for revaluation ("pegged but adjustable"), provided for the convertibility of currency, provided a mechanism for overcoming short-term liquidity crises and an organizational actor for managing the system (J. Williamson, The Failure of World Monetary Reform, New York, 1977, pp. 2-28). The World Bank was designed to help the economic and industrial reconstruction of Europe and to help developing countries achieve industrialization. The purpose of the ITO was to propel states down the path of free trade, to stop them from defecting to protectionism as a way of responding to balance of payments problems (e.g. by imposing import quotas as an alternative to devaluing their currency). The ITO never emerged, because of US concerns. Instead, a weaker agreement known as the General Agreement on Tariffs and Trade took its place. In this grand plan for international institutions in the postwar era tax, as an object of regulation, was absent. Keynes' letters and reports around the time of Bretton Woods do not discuss the coordination of tax policy between states. Tax policy, the implication seems to be, would be retained by the nation-state."
Bretton Woods in other words was Keynes creation. He apparently believed in "Good money" too. Stockman talks about his subjects in isolation as if our trade deficits had nothing to do with the breakdown of Bretton Woods and as if we could have stayed on the Gold standard without some coordination of tax policy between nations and without dislocations at home. Stockman does talk about those things but he doesn't seem to make the connection to why Nixon wasn't "perfidious" because he ended the gold standard (he was for other reasons) and couldn't maintain a gold standard or why FDR had to do what he did with our Gold Supply. [More later] The IMF article quoted goes on:
"It is an exaggeration to say that the whole Bretton Woods system broke down. What did break down was the rules of cooperation for the convertibility of the dollar into gold and the exchange rates regime. After the war, the US dollar became the international reserve currency. The US also went from being in surplus to running trade deficits. States at first wanted US dollars to meet their trade obligations. They were also happy to let the US run deficits since this provided liquidity in the international monetary system. This situation led, however, to a crisis first anticipated by the economist Triffin in 1960 (R. Triffin, Gold and the Dollar Crisis, New Haven CT, 1960). The problem was that if the US attempted to correct its balance of payments deficit it would cause a liquidity crisis. If it allowed its deficit to continue, other states would lose confidence in the dollar as a reserve currency and seek to convert their dollars into gold. US deficits continued to increase, partly because the US had to pay for its war in Vietnam. Confidence in the dollar started to slide. States began to seek, as the gold standard allowed them to, the conversion of their dollars into gold. The US reacted by announcing in August 1971 that it was going to abandon the convertibility of the dollar."[https://www.globalpolicy.org/component/content/article/209/42675.html]
Now Stockman does explain the string of bad policies that led to Nixon being forced to abandon Bretton Woods. And Nixon comes out smelling like Nixon always comes out smelling (machiavellian & ruthless). But Stockman's narrative doesn't hold up to even a cursory examination. Yes, the trainwreck that is our current deficit and the 2008 collapse was a long time coming. No it had nothing to do with the Gold Standard. Yes, it had everything to do with the class of vulture privateers that Stockman exemplifies, and the politicians they pay off and bribe. Pirates always want to be paid in Gold.
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