As any L-W wonk knows, I am into econ. I came across something that I would put on everyone's "must read" list. It's an article by Judy Shelton titled Stable Money is the Key to Recovery that appeared in The Wall Street Journal on Nov. 14, 2008. It's clear, straight-forward, and on target - clink the link and read the whole thing! Sometimes you can be staring straight at all the data but be blind to the logical conclusion. When it smacks you in the face, you reel from your own obtuseness in the face of the obvious.
Ms. Shelton has definitely slapped me good. I have thought along similar lines before - here's a recent post as proof. But I did not see that the newly discovered "strength" of the dollar argues against its suitability as an instrument of economic recovery. As long as we cling to our fickle paper, we CANNOT restore health to the market.
The dollar had been in a multi-year pattern of erosion. In March of 2008, that trend hit bottom. Then in late summer, the dollar took off, reclaiming lost ground with a vengeance. "Why?" is not the issue. Volatility is. From April, 2006, to April, 2008, the dollar lost over twenty percent of its value. Since July of this year, it has regained almost all of the ground it had lost. Here's Ms. Shelton's point, but in my words: Markets don't work when you can't read the price tags. When currencies are moving all over the map, especially when they are doing so at high velocity, you do not know whether you have made a smart or stupid trade. How efficiently will a market work when every purchase is a pig in a poke? Now I am quoting the writer: "Price signals in the global marketplace are hopelessly distorted."
There is a simple solution - reconnect currencies to a stable store of value. I say again: Solomon was no slouch economist. He viewed the importance of standardized weights and measures as a matter of utmost concern. A false balance is an abomination to the Lord, but a just weight is His delight (Prov. 11:1). Money, which is a measure of value, serves us ill when it becomes a sliding scale. An "inflating dollar" or "deflating dollar" is simply another way to describe a balance that reads false, a weight that keeps changing its heft.
Now more than ever - we need a scale that reads true and weights that are fixed. Without them, the economy cannot be fixed.
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