America's currency crisis

The dollar crisis began several months ago. Since then it has slowly worsened because of our ever-growing balance of payments and our government running enormous deficits of unprecedented proportions.

Among the most recent headlines is a piece last week that the Gulf States, along with China, Russia, Japan and France, are considering replacing the dollar as the currency for oil deals. The U.N. this month called for a new global reserve currency to end dollar supremacy. Recently Robert Zoellick, president of the World Bank, warned that "the United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency." The euro is providing Europe and the world an alternative to the dollar.

While the euro's acceptance continues to grow, Asian nations, with China leading the way, are restructuring their own financial systems to become more independent of the U.S. dollar. For months Chinese officials have been making closed-door deals with several different nations to effectively cut the U.S. dollar out of their trading. Back in March, Chinese officials announced they were serious about creating a new world reserve currency. They even introduced an alternative known as special drawing rights, or SDRs. And Muslim nations, including the oil-producing nations of OPEC, plan to replace the U.S. dollar with the gold dinar for all international crude-oil transactions. In early June, the president of Russia said the dollar "is not in a spectacular position, let's be frank, and its prospects cause various questions."

Nearly everyone's attention is directed to our government's colossal bailouts, high unemployment and health care. Americans also continue to focus on stimulus handouts, the mortgage crisis, the takeover of GM and Chrysler and Afghanistan. Meanwhile, the Federal Reserve and U.S. Treasury are desperately trying to stabilize the dollar and cope with the recession. So while we focus on our own problems, foreign leaders are scheming to use the worldwide financial meltdown as cover to replace the U.S. dollar as the world's reserve currency. Amazingly, most Americans seem unconcerned.

If the dollar loses its world reserve currency status, it would quickly spiral downward in value. The U.S. would no longer be able to finance its staggering debts, and Americans would pay a high price for decades of outrageous government fiscal mismanagement. The result would likely bring on rampant hyperinflation, high interest rates, soaring deficits, a flight from cash to hard assets and Americans drowning in an ocean of nearly worthless currency.

Moreover, If crunch time arrives and the dollar plunges, Keynesian economists will likely once again descend on Washington in a search for solutions. And again their failed attempted remedies would likely bring on even more deficit spending, resulting in billions (maybe trillions) more debt. Unfortunately, this is the price we pay for demand-side economics that has further weakened the dollar and contributed to the devastation of our monetary system.

What's the impact?

But now the situation has grown so bad that it's high time to ask: "What does this mean for me, my job, my family and my retirement?" Moreover, what effect would the destruction of the U.S. dollar have on the rest of the world? How would European, Middle Eastern and Asian economic blocs be affected if the dollar collapses?

Few Americans realize that the dollar has lost 95 percent of its purchasing power since the Federal Reserve was established in 1913. Nevertheless, they have an uneasy feeling that something is materially wrong with the direction we are headed. Not too long ago our country was the largest creditor nation on earth and the envy of the world. Now we are the world's largest debtor nation. And not too many years ago my father made enough money to support a family of five. Now it takes two breadwinners holding down two jobs to match my father's middle-class earning power. So why are these economic changes so damaging to our standard of living?

In order to find answers, we should look at the history of the American dollar and our monetary system. This leads directly to the root cause of our economic problems. which is the monetary system itself. And the only real solution to our monetary woes is to stop printing and circulating debased paper money and return again to sound money backed by gold and silver.

History tells us that we should never have wandered off the metallic money path laid out in the Constitution. Our forefathers were wisely opposed to a system of fiat debt paper money, which had become a very serious problem, so much so it was debated during the Constitutional Convention. Our Founding Fathers were so much in favor of a monetary system of gold and silver that it was mandated by the Constitution. The U.S. Constitution in Article 1, Section 8 gives the federal government the authority "to coin Money, regulate the Value thereof, and of foreign Coin, and to fix the Standard of Weights and Measures." Interestingly, the Constitution is completely silent concerning the issuance of paper money. But there is no doubt that they found paper money to be dangerously unsound. For years the states had permitted excess credit and paper money creation to run unchecked, resulting in huge sums of debt that could never be paid off. Further, our Founding Fathers fully realized that the more money that was created, the greater the loss of its purchasing power.

Space does not permit more discussion of our young country's problems with paper money, but an excellent essay on this subject has been written by Dr. Clarence Carson and is available online at: http://www.tenthamendmentcenter.com/2009/01/02/the-constitution-and-paper-money/

Blame versus solution

Today, as the money presses run unchecked and our monetary system flounders, it is easy to point the finger and say Wall Street is to blame, there isn't enough oversight or our politicians are asleep at the wheel and influenced by wealthy constituents and lobbyists. These are all valid concerns, but what good does it do to expose them if a viable solution is not offered? The enormous issuance of credit, debt and stimulus spending, the subprime mortgage meltdown, the collapse of the real estate market, the use of derivatives and other questionable instruments and the many other problems with our monetary and financial system literally cry out for timely solutions.

The situation has spiraled nearly out of control and is so grave that many argue it cannot be fixed. I do not agree. There are plenty of brilliant minds fully capable of charting a course of action that will bring about necessary changes in our monetary system before it collapses.

Unfortunately space does not permit a full list of remedies. However, the following concerns could provide a framework for subsequent solution: legislation to completely reform our monetary system including a review of all monetary policies, a complete analysis and overhaul of the Federal Reserve System, a complete analysis and overhaul of our banking system, a plan for the issuance of new replacement money backed by gold and silver, the retirement of Federal Reserve notes and an educational plan to implement all adopted changes.

President Andrew Jackson was correct when he said: "Mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, and from the multitude of corporations with exclusive privileges ... which are employed altogether for their benefit."

Robert Bunn of Cape Girardeau is a former contributing columnist to Business Today.