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

by Steve Forbes

  22 Secrets of the Temple William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon & Schuster, 1987).

  22 misunderstood what I said Binyamin Appelbaum, “A Fed Focused on the Value of Clarity,” New York Times, December 13, 2012, http://www.nytimes.com/2012/12/14/business/economy/a-federal-reserve-that-is-focused-on-the-value-of-clarity.html.

  22 speak without ever saying anything Mike Moskow, “Seven Lessons from Real Life,” commencement address (December 2002), master’s of business graduation ceremony, presented at the Kellogg School of Management of Northwestern University, Evanston, IL.

  Chapter 2: What Is Money?

  28 used as money during colonial times Federal Reserve Bank of Minneapolis, “The History of Money,” http://www.minneapolisfed.org/community_education/teacher/history.cfm.

  28 cigarettes as money during World War II Irene Finel-Honigman, A Cultural History of Finance (New York: Routledge, 2010), p. 164.

  28 giant coins to roll it around Milton Friedman, Money Mischief: Episodes in Monetary History (New York: Harcourt Brace & Company, 1994), pp. 3–4.

  29 unless you were politically connected Hedrick Smith, The Russians (Quadrangle/New York Times Book Company, 1976), pp. 26–27.

  30 neutral, impersonal arbiter Forrest McDonald, Alexander Hamilton: A Biography (New York: W.W. Norton & Company, 1982), p. 4.

  30 society fluid and open to merit Ibid.

  31 rising interest rates in the United States Ian Talley, “Taper Shock Helped Emerging Markets Rebalance, Report Says,” Wall Street Journal, December 4, 2013, http://blogs.wsj.com/economics/2013/12/04/taper-shock-helped-emerging-markets-rebalace-report-says/.

  32 holds the record for stability Nathan Lewis, Gold: The Once and Future Money (Hoboken, NJ: John Wiley & Sons, 2007), p. 30.

  32 ratio for the pound to gold in 1717 Ibid.

  33 franc’s value vis-à-vis the euro Graeme Wearden, “Swiss Bid to Peg ’Safe Haven’ Franc to the Euro Stuns Currency Traders,” The Guardian, September 6, 2011, http://www.theguardian.com/business/2011/sep/06/switzerland-pegs-swiss-franc-euro.

  34 strengthening the greenback Jacob Schlesinger, “Bush Adviser Minimizes Fears over Dollar’s Continued Slide,” Wall Street Journal, May 31, 2002, http://online.wsj.com/news/articles/SB1022796033572248600.

  34 downgraded U.S. credit in 2011 Zachary A. Goldfarb, “S&P Downgrades U.S. Credit Rating for First Time,” Washington Post, August 5, 2011, http://www.washingtonpost.com/business/economy/sandp-considering-first-downgrade-of-us-credit-rating/2011/08/05/gIQAqKeIxI_story.html.

  35 cyclical stagnation in Washington Liu Chang, “U.S. Fiscal Failure Warrants a de-Americanized World,” Xinhua News Agency, November 13, 2013, http://news.xinhuanet.com/english/indepth/2013-10/13/c_132794246.htm.

  35 a “de-Americanized world” with a new reserve currency Ibid.

  35 currency in place of the dollar Blake Ellis, “States Seek Currencies Made of Silver and Gold,” CNNMoney.com, February 3, 2012, http://money.cnn.com/2012/02/03/pf/states_currencies/.

  35 as late as the mid-1800s Ron Paul and Lewis Lehrman, The Case for Gold: A Minority Report of the U.S. Gold Commission, 2d ed. (Auburn, AL: Ludwig von Mises Institute, 2007), pp. 30–66.

  36 used in that state as money Ellis, op. cit.

  36 kingpin known as Dread Pirate Roberts “Manhattan U.S. Attorney Announces Seizure of Additional $28 Million Worth of Bitcoins Belonging to Ross William Ulbricht, Alleged Owner and Operator of ’Silk Road’ Website,” press release, U.S. Attorney’s Office, Southern District of New York, October 25, 2013.

  36 largest bitcoin trading exchange Chris O’Brien and Andrew Tangel, “Bitcoin Virtual Currency Is on the Verge of Collapse,” Los Angeles Times, February 25, 2014, http://articles.latimes.com/2014/feb/25/business/la-fi-bitcoin-collapse-20140226.

  37 bitcoins up to $142 each Kashmir Hill, “Living on Bitcoin for a Week: The Journey Begins,” Forbes.com, May 1, 2013, http://www.forbes.com/sites/kashmirhill/2013/05/01/living-on-bitcoin-for-a-week-the-journey -begins/.

  37 as much as 61% in a single day David Seaman, “It’s War Between Bit-coin’s True Believers and Speculators,” Businessinsider.com, April 11, 2013, http://www.businessinsider.com/why-bitcoin-is-falling-2013-4.

  37 pushing monetary values down further Paul and Lehrman, op. cit.

  37 through the mechanism of prices Friedrich Hayek, Denationalisation of Money: The Argument Refined: An Analysis of the Theory and Practice of Concurrent Currencies, 3d ed. (London, U.K.: The Institute of Economic Affairs, 1990), pp. 85–86; found online at mises.org/books/denationalisation.pdf.

  38 the economy of knowledge with which it operates Friedrich Hayek, “The Uses of Knowledge in Society,” American Economic Review 35, no. 4 (1945), http://www.econlib.org/library/Essays/hykKnw1.html.

  38 around $200 in 1979 dollars Martyn Williams, “Happy Birthday! The Walkman Turns 30,” Macworld, July 1, 2009, http://www.macworld.com/article/1141475/walkman.html.

  38 big as a shoebox cost $3,995 “Cost of a 1983 Motorola Cell Phone: $3,995,” SFGate.com, August 17, 2011, http://www.sfgate.com/business/article/Cost-of-a-1983-Motorola-cell-phone-3-995-2334996.php.

  39 costs a mere $50 Steve Forbes and Elizabeth Ames, Freedom Manifesto: Why Free Markets Are Moral and Big Government Isn’t (New York: Crown Business, 2012), p. 103.

  39 instrument of commerce and a measure of value Adam Smith, Wealth of Nations, vol. 1, book 4, chap. 1, available at the Library of Economics and Liberty, http://www.econlib.org/library/Smith/smWN12.html.

  39 there was no demand for them Ibid.

  40 maintains and employs the people Ibid.

  40 beyond what he himself has occasion for Adam Smith, Wealth of Nations, vol. 1, book 1, chap. 1, available at the Library of Economics and Liberty, http://www.econlib.org/library/Smith/smWN1.html.

  40 different ranks of the society Ibid.

  40 introducing order into our finances Michael McConnell, “What Would Alexander Hamilton Do?” Defining Ideas (Hoover Institution journal), July 22, 2011, http://www.hoover.org/publications/defining-ideas/article/86451.

  41 menaces our independence Alexander Hamilton, The Works of Alexander Hamilton, vol. 3, ed. Henry Cabot Lodge (New York: G.P. Putnam & Sons, 1904), p. 362.

  Chapter 3: Money and Trade

  43 combat in peace and war William R. Thompson, The Emergence of the Global Political Economy (London: Routledge Press, 2000), p. 126.

  44 mines of Peru are to Spain Frank Trentmann, ed., The Oxford Handbook of the History of Consumption (New York: Oxford University Press, 2012), p. 624.

  44 greatness and power of this State Fordham University, “Jean Baptiste Colbert (1619–1683): Memorandum on Trade, 1664,” Modern History Sourcebook, http://www.fordham.edu/halsall/mod/1664colbert.asp.

  44 equating wealth and strength Thompson, op. cit., p. 127.

  45 annual income to the U.S. economy Scott C. Bradford, Paul L. E. Grieco, and Gary Clyde Hufbauer, “The Payoff to America from Globalisation,” World Economy 29(7), July 2006, pp. 893–916.

  46 that he was in favor of a strong dollar Takashi Nakamichi, “Geithner Affirms Strong Dollar Policy,” Wall Street Journal, November 11, 2009, http://online.wsj.com/news/articles/SB125792362908743307.

  46 weak dollar more desirable Christina D. Romer, “Needed: Plain Talk About the Dollar,” New York Times, May 21, 2011, http://www.nytimes.com/2011/05/22/business/economy/22view.html?pagewanted=all.

  47 what was known as the Triffin dilemma Sandra Kollen Ghizoni, “Nixon Ends Convertibility of U.S. Dollars to Gold and Announces Wage/Price Controls,” FederalReserveHistory.org, November 22, 2013, http://www.federalreservehistory.org/Events/DetailView/33.

  47 money shortage and less global growth Sylvia Nasar, “Robert Triffin, 81, an Economist Who Backed Monetary Stability” (obituary), New York Times, February 27, 1993, http://www.nytimes.com/1993/02/27/nyregion/robert-triffin-81-an-economist-who-backed-monetary-stability.html.

  47 tra
de deficit by the early 1970s U.S. Bureau of the Census, “U.S. Trade in Goods and Services—Balance of Payments (BOP) Basis Value in Millions of Dollars 1960 through 2012,” February 8, 2013, http://www.census.gov/foreign-trade/statistics/historical/gands.txt.

  48 the dollar had to be devalued Roger Lowenstein, “The Nixon Shock,” Businessweek.com, August 4, 2011, http://www.businessweek.com/magazine/the-nixon-shock-08042011.html.

  48 closed the “gold window” Lewis E. Lehrman, “The Nixon Shock Heard ’Round the World,” Wall Street Journal, August 15, 2011, http://online.wsj.com/news/articles/SB10001424053111904007304576494073418802358.

  48 announced to control inflation Daniel Griswold, “The Unhappy 40th Anniversary of Nixon’s Wage and Price Controls,” Cato Institute, August 15, 2011, http://www.cato.org/blog/unhappy-40th-anniversary-nixons-wage-price-controls.

  49 formally pronounced dead in early 1973 Federal Reserve Bank of Richmond, “FAQs: Gold & Silver,” http://www.richmondfed.org/faqs/gold_silver/.

  49 no country on a gold standard John Black, Nigar Hashimzade, and Gareth Myles, A Dictionary of Economics (New York: Oxford University Press, 2003), p. 141.

  49 lost 45% of its value Trader Joe, “Stock Market Crash—1974,” iStockAnalyst.com, June 26, 2009, http://www.istockanalyst.com/article/viewarticle/articleid/3314883.

  49 followed by the Arab oil embargo Michael L. Ross, “How the 1973 Oil Embargo Saved the Planet,” Foreign Affairs, October 15, 2013, http://www.foreignaffairs.com/articles/140173/michael-l-ross/how-the-1973-oil-embargo-saved-the-planet.

  49 sharply raised interest rates Board of Governors of the Federal Reserve System, “Bank Prime Loan Rate Changes: Historical Dates of Changes and Rates,” http://research.stlouisfed.org/fred2/data/PRIME.txt.

  49 monetary base contracted National Mining Association, “Historical Gold Prices—1833 to Present,” http://www.nma.org/pdf/gold/his_gold_prices.pdf.

  49 unemployment shot up “Unemployment Rate. President: Richard Milhous Nixon.” PortalSeven.com, accessed December 2, 2013, http://portalseven.com/employment/unemployment_rate_for_president_term.jsp?president=Richard%20Milhous%20Nixon.

  51 intents and purposes did not exist Callum Henderson, Currency Strategy (Hoboken, NJ: John Wiley & Sons, 2006), p. 203.

  51 classical gold standard periods Michael Bordo, Barry Eichengreen, Daniela Klingebiel, and Maria Soledad Martinez-Peria, “Is the Crisis Problem Growing More Severe?” Economic Policy 16(32), April 2001, pp. 53–82, http://www.sfu.ca/~djacks/courses/ECON372/Papers/Bordo%20et%20al,%20Is%20the%20Crisis%20Problem%20Growing%20More%20Severe.pdf.

  51 with Asia and the European Union Office of the Press Secretary, “Remarks by the President in the State of the Union Address,” WhiteHouse.gov, February 12, 2013, http://www.whitehouse.gov/the-press-office/2013/02/12/remarks-president-state-union-address.

  52 to revive a stagnant U.S. economy Helene Cooper, “Obama Sets Ambitious Export Goal,” New York Times, January 28, 2010, http://www.nytimes.com/2010/01/29/business/29trade.html?_r=0.

  52 deficits with Germany, Japan, and other countries Jeff Macke, “Black Monday: The 1987 Market Crash Revisited,” Yahoo! Finance, October 19, 2012, http://finance.yahoo.com/blogs/breakout/black-monday-1987-market-crash-revisited-113951060.html.

  52 more than 22% of its value, in a single day Tim Metz, Alan Murray, Thomas E. Ricks, and Beatrice E. Garcia, “Stocks Plummet 508 Amid Panicky Selling,” Wall Street Journal, October 20, 1987, http://online.wsj.com/news/articles/SB10000872396390444734804578064571593598196.

  52 that set off the Great Depression Jude Wanniski, The Way the World Works, 4th ed. paperback (Washington, DC: Regnery, 1998), p. 136.

  53 envisioned such a doomsday scenario Eamonn Fingleton, “Apocalypse Soon: The U.S. Dollar’s Grim Future—and How to Prepare for It,” Forbes.com, July 15, 2013, http://www.forbes.com/sites/eamonnfingleton/2013/07/15/apocalypse-soon-the-u-s-dollars-grim-future-and-how-to-prepare-for-it/.

  53 scenario might unfold James Rickards, Currency Wars: The Making of the Next Global Crisis, reprint edition (New York: Portfolio Trade, 2012), p. 4.

  53 his family to Singapore David Yin, “Singapore Needs Immigrants, Says Jim Rogers,” Forbes.com, June 6, 2013, http://www.forbes.com/sites/davidyin/2013/06/06/singapore-needs-immigrants-says-jim-rogers/.

  54 Treasuries to their reserves Daniel Kruger, “China Treasury Holdings Drop to 6-Mo. Low as Yields Rise,” Bloomberg News, October 22, 2013, http://www.bloomberg.com/news/2013-10-22/china-treasury-holdings-drop-to-6-mo-low-as-yields-rise.html.

  54 known informally as “paper gold” Jamil Anderlini, “China Calls for New Reserve Currency,” Financial Times, March 24, 2009, http://www.ft.com/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac.html#axzz2mXeDqFQH.

  55 imports are regarded as subtractions Mark Skousen, Economic Logic, 4th ed. (Washington, DC: Regnery, 2013), p. 349.

  55 roughly 350 of the last 400 years Daniel Griswold, “America’s Maligned and Misunderstood Trade Deficit,” Cato Institute, April 20, 1998, http://www.cato.org/publications/trade-policy-analysis/americas-maligned-misunderstood-trade-deficit.

  56 “oil country tubular goods”—for example, pipelines Mark J. Perry, “Nations Don’t Trade with Each Other; Individuals Do” (blog), January 5, 2010, http://mjperry.blogspot.com/2010/01/countries-dont-trade-with-each-other.html.

  56 need so much steel pipe Mark Crawford, “Shale Exploration Drives the Demand for Steel,” WellServicingMagazine.com, May/June 2012, http://www.wellservicingmagazine.com/cover-story/2012/05/shale-exploration-drives-the-demand-for-steel/.

  56 foreign divisions of American companies U.S. Department of Commerce, “U.S. Goods Trade: Imports & Exports by Related Parties 2012,” US Census Bureau Press Release CB13-66, May 2, 2013, http://www.census.gov/foreign-trade/Press-Release/2012pr/aip/related_party/rp12-text.pdf.

  56 content in China’s exports is about 50% Robert Koopman, Zhi Wang, and Shang-jin Wei, “How Much of Chinese Exports Is Really Made in China?” Office of Economics, U.S. International Trade Commission, March 2008, http://www.usitc.gov/publications/332/working_papers/ec200803b_revised.pdf.

  56 wholesales at about $180 Andrew Batson, “Not Really ‘Made in China,’” Wall Street Journal, December 15, 2010, http://online.wsj.com/news/articles/SB10001424052748704828104576021142902413796.

  56 sells for around twice its cost Mark Rogowsky, “Apple’s Addiction: It Can’t Just Say No to Profit Margins,” Forbes.com, September 11, 2013, http://www.forbes.com/sites/markrogowsky/2013/09/11/marginal-cost-and-benefit-apples-addiction-to-iphone-profits/.

  57 trade deficits do not cost jobs Griswold, “America’s Maligned and Misunderstood Trade Deficit,” op. cit.

  58 balance of payments data released by the Department of Commerce Department of Commerce, Bureau of Economic Analysis website, www.bea.gov; see quarterly “US International Transactions” press releases.

  58 It doesn’t show anything else Marc Chandler, Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange (Hoboken, NJ: Bloomberg Press, 2009), pp. 14, 21.

  58 the capital account and the financial account Ibid., pp. 488–492.

  59 income receipts, and asset sales Mark J. Perry, “Think of ‘Trade Deficits’ as ‘Job-Generating, Capital-Creating Foreign Investment Surpluses for a Better America,’” American Enterprise Institute, March 14, 2013, http://www.aei-ideas.org/2013/03/think-of-trade-deficits-as-offsetting-job-creating-foreign-investment-surpluses-for-a-better-america/.

  59 balanced by a foreign investment surplus Daniel Griswold, “The Truth About Trade Deficits,” Cato Institute, June 14, 2011, http://www.cato.org/publications/commentary/truth-about-trade-deficits-jobs.

  60 a more market-oriented exchange rate “The Yuan Scapegoat,” Wall Street Journal Review and Outlook (editorial), March 18, 2010, http://online.wsj.com/news/articles/SB10001424052748704743404575127511778280940.

  60 the yuan was pegged to the dollar Edward Lazear, “Chinese ‘Currency Manipulation’ Is Not the Pr
oblem,” Wall Street Journal, January 7, 2013, http://online.wsj.com/news/articles/SB10001424127887323320404578213203581231448.

  60 has been pegged to a basket of currencies Yumi Kuramitsu and Jake Lee, “China Ends Yuan Dollar Peg, Shifts to Currency Basket,” Bloomberg.com, July 21, 2005, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a04ESaRrTpcU.

  60 increased 21% between 2005 and 2008 Lazear, op. cit.

  60 continued to grow vigorously U.S. Census Bureau, “Trade in Goods with China,” http://www.census.gov/foreign-trade/balance/c5700.html.

  61 about 80 yen to the dollar in 2012 FXTOP.COM historical exchange rates, http://fxtop.com/en/historical-exchange-rates.php.

  61 other Asian nations, such as Korea and Taiwan Takashi Nakamichi and Tatsuo Ito, “Japan’s Call for Weaker Yen Spurs Talk of Copycat Moves,” Wall Street Journal, December 27, 2012, http://online.wsj.com/news/articles/SB10001424127887323984704578205303116695058.

  62 second-most-traded reserve currency after the dollar Bill Conerly, “Future of the Dollar as World Reserve Currency,” Forbes.com, October 25, 2013, http://www.forbes.com/sites/billconerly/2013/10/25/future-of-the-dollar-as-world-reserve-currency/.

  63 teetered on the brink of insolvency CNN Library, “European Debt Crisis Fast Facts,” September 14, 2013, http://www.cnn.com/2013/07/27/world/europe/european-debt-crisis-fast-facts/.

  64 such suggestions “insane” Louis Woodhill, “The ECB, Not Greece, Threatens the Euro,” RealClearMarkets, January 18, 2011, http://www.realclearmarkets.com/articles/2011/01/18/the_ecb_not_greece_threatens_the_euro_98831.html.

  64 would simply disintegrate Ibid.

  64 another roller-coaster fiat currency like the dollar Mark Hendrickson, “The Euro Is a Frankenstein Currency,” Forbes.com, June 21, 2012, http://www.forbes.com/sites/markhendrickson/2012/06/21/the-euro-is-a-frankenstein-currency/.

  64 have now adopted it “Euro Area Member States,” Eurozone Portal, accessed March 5, 2014, http://www.eurozone.europa.eu/euro-area/euro-area-member-states/.