It is open season for wild monetary prognostications. More premature obituaries on the dollar have been posted on the Internet. For example, see Jim Willie’s The US Dollar Paper Tiger (Gold-Eagle, January 11) with epitaphs like “the U.S. dollar rising to the cemetery”, or “dollar death dance”. Or see another article, Jeff Nielsen’s entitled Maximum Fraud in U.S. Treasurys(Gold-Eagle, January 3). Itbetrays maximum misunderstanding about keeping the dollar on a life-support system. It assumes that the Fed and the U.S. Treasury are fighting tooth and nail to keep the value of government debt high lest it collapse in want of supportfrom Japan, China, and other countries.

These views hang the picture upside down. In actual fact, the Fed and the U.S. Treasurydesperately want to beat down the value of the dollar. The greatest obstaclefrustrating their effort is the stubbornly high and still increasing value of U.S. Treasurys. Captains of the world’s monetary system are yanking levers and twisting throttles which are no longer connected to anything. The captains are no longer in control. Yet they continue to wave their batons feverishly and pretend that the orchestra is paying attention. They want Jim Willie, Jeff Nielsen and everyone else to believe that the falling interest-rate structure is the outcome of their deliberate monetary policy. In fact, the Fed and the U.S. Treasury are trying to stop the rate of interest from falling further. They instinctively realize the threat offalling interest rates brings deflation and depression in its train.The dollar is much too strong, contrary to the wishes of policy-makers.It is not so easy to beat down the value of the dollaras suggested by Keynesian textbooks, even if you have the key to print shop where the presses are running.The dollar’s strength prevails in spite of the withdrawal of Chinese and Japanese support of the U.S. bond market, andin spite of the destructive monetary policies of the American guardians of the dollar. 

Paul Krugman’s article in the December 15 issue of The New York Times under the title G.O.P. Monetary Madness takes G.O.P. presidential candidate Dr. Ron Paul to task for his ‘ideological’ stand on money. For excellent reasons, not all of which had to do with fear of a Zimbabwe-style hyperinflation, the Constitution explicitly prohibited manipulation of the dollar such as Bernanke’s threefold increase of the monetary base in three years. Krugman ruefully reports that the ‘hard money doctrine and the paranoia about inflation’ took over the G.O.P. that has, up until now, meekly followed Keynesian precepts about pump priming and turning the stone into bread through pushing interest rates all the way down to zero.

According to Krugman, in spite of the ‘false alarm’ sounded by the Austrian economists over the debasement of the dollar, inflation is still only 1.5 percent. ‘Who could have predicted that so much money printing would cause so little inflation?’ he asks rethorically. ‘Well, I could, and I did’, he boasts, ‘because I understand Keynesian economics that Mr. Paul reviles.’