Saturday, September 01, 2012

Art Cashin Correctly Identifies August 1971 As the Date of Our Downfall

1 September 2012

Art Cashin recently identified August 1971 as "the most disastrous moment in US history." I concur.

His article is here:

The Most Disastrous Moment In US Economic History Occured In August 1971

My comments to other readers (whom I thought missed the point of the discussion) are here:

Uh. I think we are forgetting the real question here. Do we want our currency to be stable in value, or to be a plaything of the central banks and politicians? I for one opt for the former. Fixing the currency to something real of course achieves that purpose more effectively than any other known strategy.

Humans are still emotional, so the gold standard doesn't "fix" problems, rather, it prevents their development, and that is what is at issue here. When the currency is unstable, the citizenry are literally forced into speculative assets as a means of preserving wealth. You don't have to agree on all points with Mises to see that easy money promotes capital misallocation, as we've had boatloads of that since at least the Vietnam war, and in spades since the advent of the Greenspan/Bernanke era.

Would preserving the gold standard have created a "perfect" financial world? Of course not. But we would have averted the worst of the excesses of the past 4 decades, and savers/investors, rather than speculators and manipulators, would have been rewarded.

The current US economy is hugely allocated to the practice of financial management (and law). Doug Casey identifies financial management alone as accounting for roughly 22% of the US economy (it should be more on the order of 1%). This is because value is being destroyed everywhere, and savers are desperate.

The world economy is imbalanced towards the holders of real assets - oil in the Middle East and Asia and cheap labour in southeast Asia. Islamic extremism has been funded by inflationary monetary policy, which has run up the price of Middle Eastern oil. The present regime is a disaster, and none of our political leaders has a plan to deal with it (apart from Mr. Paul, with whom I certainly do not agree on all points).

Was the abandonment of the gold standard the worst event of the second half of the twentieth century? Yes, certainly. Mr. Cashin is absolutely correct here.

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