Money_How the Destruction of the Dollar Threatens the Global Economy - and What We Can Do About It

by Steve Forbes

  64 close-knit nations many times easier George Melloan, “The Euro Has Been a Smashing Success,” Wall Street Journal, March 8, 2010, http://online.wsj.com/news/articles/SB10001424052748703862704575099812920741300.

  66 two-thirds of existing $100 bills reside outside the United States Jacob Goldstein, “Most $100 Bills Live Outside the U.S.,” NPR.org, April 17, 2013, http://www.npr.org/blogs/money/2013/04/12/177051690/most-100-bills-live-outside-the-u-s.

  66 rose to around 66% in 2012 John C. Williams, “Cash Is Dead! Long Live Cash!” Federal Reserve Bank of San Francisco 2012 Annual Report, http://www.frbsf.org/publications/federalreserve/annual/2012/2012_Annual_Report_Essay.pdf.

  68 increasing short-term interest rates Ronald I. McKinnon, “Tapering Without Tears—How to End QE3,” Wall Street Journal, October 27, 2013, http://online.wsj.com/news/articles/SB10001424052702304799404579153693500945608.

  69 fallen sharply to 34% of GDP Kimberly Amadeo, “National Debt by Year,” About.com, accessed March 5, 2014, http://useconomy.about.com/od/usdebtanddeficit/a/National-Debt-by-Year.htm.

  Chapter 4: Money Versus Wealth

  71 about her views of the economy Annalyn Kurtz, “Smooth Sailing for Yellen in Front of Senate,” Money.CNN.com, November 14, 2013, http://money.cnn.com/2013/11/14/news/economy/janet-yellen-confirmation-hearing/.

  72 GDP growth of just under 2% “Gross Domestic Product,” Bureau of Economic Analysis, accessed February 27, 2014, http://www.bea.gov/national/xls/gdpchg.xls.

  72 balance sheet from $900 billion to $3.7 trillion in 2013 Board of Governors of the Federal Reserve System, “Credit and Liquidity Programs and the Balance Sheet: Recent Balance Sheet Trends,” FederalReserve.gov, accessed December 19, 2013, http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm.

  72 bank reserves had already reached $124 billion Board of Governors of the Federal Reserve System, “Aggregate Reserves of Depository Institutions and the Monetary Base,” FederalReserve.gov, accessed December 17, 2013, http://www.federalreserve.gov/releases/h3/current/.

  72 many times the normal level Ibid.

  72 interest rates known as Operation Twist Nick Nasad, “FOMC Does the ‘Twist,’ but Markets Respond with Risk-Off and USD Strength,” FX Times, September 21, 2011, http://www.fxtimes.com/fundamental-updates/fomc-does-the-twist-but-markets-respond-with-risk-off-and-usd-strength/.

  73 the Zimbabwe dollar was worth more than the U.S. dollar “A Worthless Currency,” The Economist, July 17, 2008, http://www.economist.com/node/11751346.

  73 destruction of the country’s agricultural economy “Q&A: Zimbabwe’s Economy,” BBC News, July 31, 2007, http://news.bbc.co.uk/2/hi/6922441.stm.

  73 hyperinflation second only to that of Hungary after Wrold War II Steve H. Hanke and Nicholas Krus, “Working Paper No. 8: World Hyperinflations,” Cato Institute, August 15, 2012, http://www.cato.org/publications/working-paper/world-hyperinflations.

  73 a hot novelty item among collectors Patrick McGroarty and Farai Mutsaka, “How to Turn 100 Trillion Dollars into Five and Feel Good about It,” Wall Street Journal, May 11, 2011, http://online.wsj.com/news/articles/SB10001424052748703730804576314953091790360.

  75 accuses advocates of stable money of “inflation hysteria” Paul Krugman, “Free-Floating Inflation Hysteria,” NYTimes.com, November 5, 2013, http://krugman.blogs.nytimes.com/2013/11/05/free-floating-inflation-hysteria/?_r=0.000.

  75 I don’t see risks to financial stability Neil Irwin, “Janet Yellen Faced the Senate Today. Here’s Everything You Need to Know,” Washingtonpost.com (Wonkblog), November 14, 2013, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/14/janet-yellen-faces-the-senate-today-click-here-for-up-to-the-minute-updates/.

  75 got as low as 1.1% Bureau of Labor Statistics, “Consumer Price Index, November 2013,” U.S. Department of Labor Press Release USDL-13-2390, accessed December 19, 2013, http://www.bls.gov/news.release/pdf/cpi.pdf.

  75 in about a decade “Consumer Price Index—Average Price Data, Ground Beef, 100% Beef, per lb.,” Bureau of Labor Statistics, accessed March 6, 2014, http://data.bls.gov/timeseries/APU0000703112.

  75 about double what it was less than 10 years ago Bureau of Labor Statistics, http://data.bls.gov/cgi-bin/surveymost.

  75 increased by 25% in less than one year Michael Sivy, “If There’s No Inflation, Why Are Prices Up So Much?” Time.com, March 12, 2013, http://business.time.com/2013/03/12/if-theres-no-inflation-why-are-prices-up-so-much/#ixzz2o1plLDlJ.

  76 market basket increased more than 44% Peter Schiff, “Inflation Propaganda Exposed,” Euro Pacific Capital, January 10, 2013, http://www.europac.net/commentaries/inflation_propaganda_exposed.

  76 ranges from as low as 5% to as high as 10% John Williams, “Alternate Inflation Charts,” Shadow Government Statistics, accessed March 6, 2014, http://www.shadowstats.com/alternate_data/inflation-charts.

  76 gold was three times what it was in 2003 Goldprice.org, accessed March 6, 2014, http://goldprice.org/gold-price-history.html.

  76 370 to 506, an increase of nearly 37% Reuters.com, accessed October 10, 2013.

  77 collapse of the German economy, and the rise of Hitler Richard Finger, “The Federal Reserve Is Making a Big Mistake,” Forbes.com, September 20, 2013, http://www.forbes.com/sites/richardfinger/2013/09/20/the-federal-reserve-is-making-a-big-mistake.

  77 when the economy is weak Binyamin Appelbaum, “In Fed and Out, Many Now Think Inflation Helps,” New York Times, October 26, 2013, http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?_r=0.

  78 not something to worry about Ibid.

  78 comes out of nowhere and hits you Amity Shlaes, “Watch Bernanke’s ‘Little’ Inflation Capsize U.S.,” Bloomberg.com, March 14, 2012, http://www. bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html.

  78–79 weren’t producing enough money Ibid.

  79 already turned their money into wallpaper Ibid.

  79 can come as fast as a gust Ibid.

  79 a graph that became known as the Phillips curve Kevin D. Hoover, “Phillips Curve,” Library of Economics and Liberty, accessed March 24, 2014, http://www.econlib.org/library/Enc/PhillipsCurve.html.

  80 economists whose work disproved the Phillips curve Brian Domitrovic, “The Economics Nobel Goes to Sargent & Sims: Attackers of the Phillips Curve,” Forbes.com, October 10, 2011, http://www.forbes.com/sites/briandomitrovic/2011/10/10/the-economics-nobel-goes-to-sargent-sims-attackers-of-the-phillips-curve/.

  80 labor participation rates at a 35-year low “Labor Force Statistics from the Current Population Survey: Unemployment Rate—Civilian Labor Force—LNS14000000,” Bureau of Labor Statistics, accessed March 6, 2014, http://data.bls.gov/cgi-bin/surveymost?ln.

  80 inflation and unemployment regularly move in tandem Brian Domitrovic, “The Fed Is Failing Its Unemployment Mandate,” Forbes.com, September 20, 2011, http://www.forbes.com/sites/briandomitrovic/2011/09/20/the-fed-is-failing-its-unemployment-mandate/.

  80 higher levels than during the financial crisis “Unemployment Rates in the United States Since 1948,” DaveManual.com, accessed March 24, 2014, http://www.davemanuel.com/historical-unemployment-rates-in-the-united-states.php.

  80 both rappelled down a cliff Domitrovic, “The Fed Is Failing Its Unemployment Mandate,” op. cit.

  80 examples are most of the 1920s and 1960s For the 1920s: “The Measurement and Behavior of Unemployment,” National Bureau of Economic Research, 1957, p. 215; for the 1960s: “Household Data Annual Averages: Employment Status of Civilian Noninstitutional Population, 1943 to date,” National Bureau of Economic Research.

  81 Why does poverty exist anywhere on earth? Ron Paul, “The Coming Debt Limit Drama: Government Wins, We Lose,” The-Free-Foundation.org, January 21, 2013, http://www.the-free-foundation.org/tst1-21-2013.html.

  81 would actually welcome inflation Appelbaum, op. cit.

  81 those who are the earliest recipients of the new money Murray N.
Rothbard, “What Has Government Done to Our Money?” Ludwig von Mises Institute, accessed March 6, 2014, http://mises.org/money/3s2.asp.

  82 punish the virtuous, the millions of responsible savers Finger, op. cit.

  82 we can see the cash when we want Catherine Rampell, “As Low Rates Depress Savers, Governments Reap Benefits,” NYTimes.com, September 10, 2012, http://www.nytimes.com/2012/09/11/business/as-low-rates-depress-savers-governments-reap-the-benefits.html?pagewanted=all.

  82 I shall leave to be considered John Locke, The Works of John Locke, vol. 5 (London: Thomas Davison, Whitefriars, 1823), p. 145.

  83 an additional $500 billion interest expense Finger, op. cit.

  83 which amounted to $536 billion in 2012 Kaiser Family Foundation, “Medicare Spending and Financing Fact Sheet,” KFF.org, November 14, 2012, http://kff.org/medicare/fact-sheet/medicare-spending-and-financing-fact-sheet/.

  83 now costs around $80 billion a year U.S. Department of Agriculture, Food and Nutrition Service, “Supplemental Nutrition Assistance Program Participation and Costs” (program data), fns.usda.gov, February 7, 2014, http://www.fns.usda.gov/pd/snapsummary.htm.

  83 from $3 a barrel to almost $40 The source for $3 oil: Energy Information Administration, http://eia.gov/dnav/pet/hist; the almost $40: James L. Williams, “Oil Price History and Analysis,“ WTRG Economics, http:// wtrg.com/prices.htm, accessed March 24, 2012.

  84 employees in the oil and gas industry has increased by over 30% Bureau of Labor Statistics, “Oil and Gas Extraction,” Series CES1021100001, http://data.bls.gov/pdq/SurveyOutputServlet.

  84 calls such ventures “noble flops” Rich Karlgaard, “Ahead of Their Time: Noble Flops,” Forbes.com, August 14, 2013, http://www.forbes.com/sites/richkarlgaard/2013/08/14/ahead-of-their-time-noble-flops/.

  84 families bought pianos even if they didn’t play them Adam Fergusson, When Money Dies: The Nightmare of the Weimar Collapse (London: William Kimber, 1975), p. 64; available online at ThirdParadigm.org, http://thirdparadigm.org/doc/45060880-When-Money-Dies.pdf.

  85 collapse of the savings and loans in the 1980s Jim Powell, “The Pleasures and Perils of Tax Loopholes,” Forbes.com, March 7, 2012, http://www.forbes.com/sites/jimpowell/2012/03/07/the-pleasures-and-perils-of-tax-loopholes/.

  86 culprits were Fannie Mae and Freddie Mac Peter J. Wallison, “Fannie, Freddie Caused the Financial Crisis,” USA Today, November 25, 2011, http://www.aei.org/article/economics/financial-services/housing-finance/fannie-freddie-caused-the-financial-crisis/.

  87 lowered the federal funds rate to 1% Federal Reserve Press Release, June 25, 2003, http://www.federalreserve.gov/boarddocs/press/monetary/2003/20030625/.

  87 grew at levels equivalent to the inflationary 1970s Robert P. Murphy, “Evidence that the Fed Caused the Housing Boom,” Ludwig von Mises Institute, Mises Daily, December 15, 2008, http://mises.org/daily/3252.

  87 subprime mortgage market grew 200% Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report, January 2011, p. 70, http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.

  87 homeless man in Saint Petersburg, Florida, managed to buy five houses Steve Forbes and Elizabeth Ames, Freedom Manifesto (New York: Random House, 2012), p. 149.

  87 interest rates, which reached 5.25% in June 2006 Robert P. Murphy, “Did the Fed Cause the Housing Bubble?” Ludwig von Mises Institute, Mises Daily, April 14, 2008, http://mises.org/daily/2936.

  87 write down the value of their capital Brian S. Wesbury and Robert Stein, “Bernanke Finally Fingers Mark-to-Market,” National Review.com, March 8, 2010, http://www.nationalreview.com/articles/229276/bernanke-finally-fingers-mark-market/brian-s-wesbury.

  88 brought inflated prices back down to reality Alex J. Pollock, “Americans’ Pre-Crisis Wealth Was an Illusion,” American Enterprise Institute, June 21, 2012, http://www.aei-ideas.org/2012/06/americas-pre-crisis-wealth-was-an-illusion/.

  89 it increases income inequality Zoran Balac, “Monetary Inflation’s Effect on Wealth Inequality,” Ludwig von Mises Institute, August 6, 2008, http://mises.org/journals/qjae/pdf/qjae11_1_1.pdf.

  90 Wall Street was ecstatic Bernard Condon, “Dow Jones Climbs 206 Points on Fed Stimulus News,” Huffington Post, September 13, 2012, http://www.huffingtonpost.com/2012/09/13/dow-jones-fed-stimulus_n_1882063.html.

  89 cheaper for the government to borrow Anthony Randazzo, “How Quantitative Easing Helps the Rich and Soaks the Rest of Us,” Reason.com, September 13, 2012, http://reason.com/archives/2012/09/13/occupy-the-fed.

  89 gains in the hundreds of billions of dollars “Low Dollar Helps Fuel Record High Price for Crude Oil,” New York Times, October 26, 2007, http://www.nytimes.com/2007/10/26/business/worldbusiness/26iht-oil.4.8070642.html.

  89 opened up new domestic energy sources Christine Harvey and Asjylyn Loder, “Fracking Boom Pushes U.S. Oil Output to 25-Year High,” Bloomberg News, December 11, 2013, http://www.bloomberg.com/news/2013-12-11/fracking-boom-pushes-u-s-oil-output-to-25-year-high.html.

  90 a barrel of oil from $4.31 to $10.11 David Hammes and Douglas Willis, “Black Gold: The End of Bretton Woods and the Oil-Price Shocks of the 1970s,” Independent Review, March 22, 2005, http://www.thefreelibrary.com/Black+gold%3A+the+end+of+Bretton+Woods+and+the+oil-price+shocks+of+the...-a0131605501.

  90 gasoline would probably be around 30 cents a gallon Ralph Benko and Charles Kadlec, The 21st Century Gold Standard (Washington, DC: Webster’s Press, 2011) and available online at AGoldenAge.com, http://agoldenage.com/downloads/goldbook_with_cover_final.pdf.

  90 whom inflationism has impoverished, not less than of the proletariat John Maynard Keynes, Essays in Persuasion (New York: W. W. Norton & Co., 2011), first published 1931.

  90 credit usually ends up being rationed Taner M. Yigit, “Effects of Inflation Uncertainty on Credit Markets: A Disequilibrium Approach,” Bilkent University, Ankara, undated, http://economics.bilkent.edu.tr/papers/02-09%20DP_T.Yigit.pdf.

  91 not a lot of financing right now Lynn Tilton, “Financing for Small Business” WSJ Startup of the Year, undated, http://projects.wsj.com/soty/mentor/lynn-tilton.

  91 tepid for so long Cathy McMorris Rodgers, “Reverse the Fed’s Monetary Practices,” Forbes.com, September 21, 2010, http://www.forbes.com/2010/09/21/federal-reserve-spending-barack-obama-opinions-contributors-cathy-mcmorris-rodgers.html.

  91 skewed credit markets Steve Forbes, “Finally! The Fed May Stop Poisoning the Economy,” Forbes.com, July 15, 2013, http://www.forbes.com/sites/steveforbes/2013/06/26/finally-the-fed-may-stop-poisoning-the -economy/.

  92 worth just 17 cents in 1971 dollars U.S. Department of Labor, Bureau of Labor Statistics, CPI Inflation Calculator, http://www.bls.gov/data/inflation_calculator.htm.

  92 an astonishing 68% decline in wealth National Journal staff, “Pew Research: Older Americans’ Net Worth Up; Younger Americans’ Net Worth Down,” NationalJournal.com, November 7, 2011, http://www.nationaljournal.com/economy/pew-research-older-americans-net-worth-up-younger-americans-net-worth-down-20111107.

  93 working people—not just rich people—prospered Benko and Kadlec, op. cit.

  94 hyperinflation that has reached as high as 5,000% Gary Marx, “For Poor Argentines, ‘There Is No Work,’” Chicago Tribune, May 20, 1990, http://articles.chicagotribune.com/1990-05-20/news/9002110268_1_buenosaires-poor-argentines-argentina.

  94 more than double the government’s numbers Ken Parks, “New Program Sets Stage for Annual Wage Talks,” Wall Street Journal, January 3, 2014, http://online.wsj.com/news/articles/SB100014240527023038707045 79298491504285038, quoted at http://argentinasalvajizada.wordpress.com/2014/01/07/argentine-update-jan-6-2014/.

  94 from 35 to 50% lower than the official exchange rate Graciela Ibáñez, “Travel Alert: Dollars Fetch a Premium in Black Markets of Argentina, Venezuela,” Forbes.com, January 15, 2014, http://www.forbes.com/sites/janetnovack/2014/01/15/travel-alert-dollars-fetch-a-premium-in-black-markets-of-argentina-venezuela/.

  95 the bolivar was devalued 992% Moisés Naim, �
��Venezuela’s Move to Devalue Is Desperate,” FT.com, February 13, 2013, http://www.ft.com/intl/cms/s/0/8fd30252-75d5-11e2-9891-00144feabdc0.html#axzz2qfdmIUdo.

  95 currency is woefully misaligned Ibid.

  95 achieve a 7.5% growth rate in 2010 “Brazil GDP—Real Growth Rate,” Index Mundi, accessed March 6, 2014, http://www.indexmundi.com/brazil/gdp_real_growth_rate.html.

  96 that have too many foreign employees Sara Hamdan, “Saudi Arabia to Fine Firms with Too Many Foreign Workers,” New York Times, November 21, 2012, http://www.nytimes.com/2012/11/22/world/middleeast/saudi-arabia-to-fine-firms-with-too-many-foreign-workers.html?_r=0.

  96 and barred new Internet taxes Mark Bautz, “How a Capital-Gains Cut Will Change the Way You Invest,” CNNMoney.com, August 1, 1997, http://money.cnn.com/magazines/moneymag/moneymag_archive/1997/08/01/229754/index.htm; Matthew L. Wald, “Attention Internet Shoppers: No New Taxes,” New York Times, October 9, 1998, http://www.nytimes.com/1998/10/09/business/attention-internet-shoppers-no-new-taxes.html.

  97 gold price fell “Historical Gold Prices—1833 to Present,” National Mining Association, accessed March 6, 2014, http://www.nma.org/pdf/gold/his_gold_prices.pdf.

  97 under $2 a bushel in 1999 “Agricultural Prices,” U.S. Department of Agriculture, National Agricultural Statistics Service, December 30, 1999, http://usda01.library.cornell.edu/usda/nass/AgriPric//1990s/1999/AgriPric-12-30-1999.pdf.

  97 as low as $10 a barrel “The Next Shock?” The Economist, March 4, 1999, http://www.economist.com/node/188181.

  97 a level it has not yet touched since Declan McCullagh, “Nasdaq 5,000: Ten Years After the Dot-Com Peak,” CNET.com, March 10, 2010, http://news.cnet.com/8301-10784_3-10466637-7.html.

  97 went above $400 an ounce in late 2003–2004 Goldprice.org, http://goldprice.org/gold-price-history.html.

  Chapter 5: Money and Morality

  99 not one man in a million can diagnose John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt, Brace, and Howe, 1920), chap. 5; available online from the Library of Economics and Liberty at http://www.econlib.org/library/YPDBooks/Keynes/kynsCP6.html#VI.13.