FAITH IN GOVERNMENT
Q: So it all boils down to faith in the United States Government's and our Congress's willingness and ability to manage both our domestic and international affairs properly?
A: Correct. I repeat: If the dollar and sterling were fully trusted, there would hardly be a problem with liquidity because there would be wide acceptability up to the highest level ad infinitum. There would be enough money for all legitimate purposes. Interest rates could come down. The world would march toward greater stability rather than monetary uncertainties and doubts because the U.S. dollar would then be really "as good as gold."
The question of liquidity and of financing world trade would easily be solved if the world had complete faith in the monetary management of the U.S. dollar and the British pound.
America is going in many ways whence Europe came. The Germans on the Continent — and in some respects the French, too — are trying very hard to go where we told them. Checkbook in one hand, Bible in the other, we taught the world what to do: balance your books, export more, do the right thing. Well, we told them all that and they are doing it. We, on the other hand, are merrily going on huge-scale domestic and international welfare, living on borrowed money, etc. — heading in the direction whence they came.
Q: Was the present plight of the dollar predictable?
A: Yes, it was. Way back on April 14, 1958, I stated in public that "the U.S. dollar is weak compared to most European currencies, a phenomenon emphasized by the fact that several Central Banks abroad prefer gold holdings to greenback reserves."
And on May 12 of that same year I said: "We are a great deal more dependent upon the outside world than the outside world is upon us. The unpleasant truth is that, in our international economic relations, our fundamental long-range position is not one of strength, but one of great potential weakness." As we are going, this surely is even truer today.
These are just two examples of warnings given years ago which have now come to pass. And please do not think that my Organization wants to take sole credit for what we discovered and forecast in the past eight or ten years. The facts were known, way back, to anybody who really wanted to know. Anybody who took the trouble of lifting the veil of governmentally managed news could prognosticate with astounding accuracy.
THE NEW ECONOMICS
Q: We have mentioned a lot about the "new economists." What do they believe?
A: The neo-economists think you can pump-prime and make deficits year in and year out. I am old-fashioned enough to believe in gravity. I don't believe you can spend more forever than you either have or earn. In bad years you can pump-prime; but in the good years you must rake it back. It is as simple as that. The attempt to feel prosperous on borrowed money only leads to the day of reckoning — the moment of truth.
Monetary mismanagement, the application of palliatives instead of cures, loose credit policy by the growth-happy neo-economists have started to bear bitter fruit.
Q: It seems that there are amazing parallels here between the "new morality" and the "new economics." Is this true?
A: I'm inclined to believe it. I believe that the "new economics" are an expression in the economics sphere of the lack of morality that exists in so many other spheres. Again, I do not believe that these "new economists" will abolish gravity.
Q: Has the "day of reckoning" you mentioned a moment ago now come for sterling?
A: For sterling, it certainly has come. After devaluation I felt that "Britain had the measles and is not likely to catch them again in the immediate future — even though later on she may get scarlet fever." But now it appears that the pound is either not yet over its measles; has caught them again; or has contracted a bad case of scarlet fever.
It seems that even if there were confidence in the pound, there is obviously none in the people who manage it. Talk of yet another pound sterling devaluation fails to abate, even though everybody knows that such a move would globally bring down the entire currency structure.
Q: Do you foresee the devaluation of the dollar in the near future?
A: We are not saying that the dollar will be devalued now. Chances are, it will not. But as we are going — I stress, as we are going now — we are introducing more and more palliatives instead of cures. That is the basic thing: we are living by gimmickery now. In our era of systematic self-bamboozlement and far-reaching intellectual dishonesty, acrobatics in figures, manipulations and statistical doctoring are on a victory march across the world.
Q: Could you cite some examples of gimmickery in addition to those you have mentioned here in passing?
A: Well, there are multiple millions of dollars' worth of certain U.S. securities which we have sold to foreign governments with a maturity of one year plus one day (or longer). Now peculiarly, everything up to 365 days is generously admitted to represent a liability; but anything one day more than a year counts as an asset!
Then there are the $800 million which are deposited by the IMF and the U.S. — wholly owned by both! Now how can that be?
And now we have in the works a plan for Special Drawing Rights from the IMF called "SDR's." I call them monetary LSD's because these things will put us on a credit trip.
All these involved schemes remind one of the old joke about "little lies, big lies — and statistics."
Q: How and when might the nation reverse its present downward trend? What is the ultimate solution?
A: I see no solution as things are going now. The world is drifting towards the point where everybody wants more for less, and this is no way towards strength. We live in a world in which there is a premium on disincentives. Many people on a dole or relief without taxes (now we call them "clients!") are better off than those who work and pay taxes!
As you have seen — and as history shows — the gold bubbles are getting worse. This was the worst in living memory. So the next shock will be worse again.
Catastrophes do not come in accordance with what is logical or what would be "desirable." Thus, the contention that "It can't happen here" need not remain valid forever. As we are drifting or driving, without self-discipline, it could one day, indeed, happen even here.
So far there are no indications that a lesson is being learned from the fall of pound sterling, even though it gave us a warning in the form of the most severe monetary shock in many a year.