The Federal Reserve just released more documents from the far past and these interest me a great deal, yes, a great deal. Once again, we must revisit the debates about war spending, the value of gold, international trade and balancing budgets. The following speech by William McChesney Martin, Jr. covers all these topics. He was in an epic struggle with Texan President, LBJ, who was exactly like Bush Jr: wanting to spend wildly on many wars while keeping popular at home with lots of free spending and easy credit. Martin, Jr. warns him, this will lead rapidly to debasing the currency and inflation.For my own reference: this speech was made when I was a student in Germany, living on my own. I had $6,000 as my money stash. I lived like a queen on it because the devaluing of the dollar had barely begun to be felt in Europe. Due to rising economic problems, Europe was about to enter an extended period of rebellions and uprisings, some of which, I was very much involved in, delivering speeches denouncing the CIA secret torture in Vietnam and CIA actions in Europe. Here is a Communist site talking about the two-tiered gold system set up when the British Empire began its final collapse as a world power:
The crisis in the international monetary system – foreseen by Marxists at a time when the apologists for neocapitalism were convinced that the capitalist mode of production had solved its basic contradictions – is now taking the form of convulsions that follow each other with increasing rapidity: the crisis of the pound sterling, followed by its devaluation in November 1967; the crisis of the dollar in March 1968, followed by the establishment of the “two tier” price system for gold; the crisis of the French franc, accompanied by its masked devaluation, a masked revaluation of the German mark, and a new sterling crisis in November 1968.
I was smart. I exchanged all of my US dollars for the DM in January. So I didn’t notice the deterioration in the dollar until I flew back home. I do remember that Germans were going over to London to pay visits and buy stuff because it was so cheap there. I even thought of trying that but decided, I couldn’t. Because I was underage and totally on my own, illegally, incidentally, I had to be very careful crossing international frontiers. I usually did this on foot. Didn’t get caught until the Staatspolizei were actively looking for me.
Here is a speech the head of the Fed made right on the eve of the May Day uprisings in Europe. Oh, by the way, this last May Day saw some quite similar actions in Germany, France, former Warsaw States like Poland, even Turkey, Greece….reminds me of 1968 again.
“Good Money Is Coined Freedom” Guest of Honor and Speaker THE HONORABLE WILLIAM McCHESNEY MARTIN, JR. Washington, D. C. Chairman Board of Governors Federal Reserve System
Mach 16, 1968
I want to start today by making a few general observations, and these really have to do with the timing of the meeting that we’re attending.
What we’re confronted with today is a budgetary problem that’s been getting progressively worse: what we are moving toward gradually is not deficit finance for a temporary period, but perpetual deficit. This is a very sad progression toward undermining the currency….
He certainly was right. The US began to not only spend more and more and not even bother pretending to pay off previous debts, we began our trade deficit binge. One that we know only one way to fix: by killing all world trade and our own economy. Call this ‘trade balancing via hari kari’.
And when you have an economy that’s overheating, and you still do not want to bring things into balance, you inevitably move in the direction of perpetual deficit…..What happens is that “surplus” gradually comes to be a bad word and “deficit” becomes a good word…
Debt is wealth: this anti-capitalist motto should be printed on all our IOU $ bills.
It doesn’t take long to see how this gradually puts a country in a way that not necessarily causes it to collapse—but it has reached a stage of perpetual deficit.
Notice how he must skate around the obvious! This always leads to a national collapse! Countries can still exist as countries afterwards, look at South American countries. But usually, they are progressively weaker every time they do this. The only way out is to have a revolution, denounce debts and then become very violent. We see this over and over, in history.
The heart of our budgetary problem—and I have no hesitation in saying this—is that this country today is overextended and overcommitted…. We have commitments in Vietnam, we have commitments in South Korea, we have commitments in the Middle East…. Then, we have these military forces stationed in Western Europe. I don’t want to reopen the question of whether they should be moved or not—this is not my field. But I do want to say that we are overcommitted…
Ah, I very fondly remember March, 1968! I was part of the dialogue about the US being grossly overextended and sliding into economic problems! When this speech was made, we were not neck-deep in Vietnam and raining bombs on Cambodia, etc. But that was rapidly approaching. When I left America in 1967, we were lucky to get 20 people to march against the war. When I came back, it was easy to get 20,000 to do this.
I say flatly that it’s time that we stopped talking about “guns and butter,” it’s time that we stopped assuming that this is just a “little war” in Vietnam, and face up to the fact that we are in a wartime economy….
Not once in the last 50 years, has the US ‘faced up to being…in a wartime economy.’ This was started by the Cold War. That was one damn expensive war and nearly all of it was funded with long term debts that get rolled over and over and over again and will be with us until we cease to be a country. On the fiscal and debt management side, it’s perfectly obvious that we have to get the Government’s budgetary deficit into more manageable proportions. The pressure of the Federal Government on the money market continues to grow in such a way that there is no real opportunity to moderate interest rates as such because the pressures keep growing on and on. Actually we are finding out once again that in this country if you want to have moderate interest rates and low interest rates without inflation, there must be sound fiscal and budgetary and debt management policy. The surest way to get high interest rates — which everyone agrees they’re against — is to have unsound fiscal and budgetary policy….
Ah, but we did find such a way! We got lower and lower interest rates while running higher and higher debts and trade deficits: we invited all our trade rivals, our political rivals and nearly everyone to suck down these debts and in turn, they could own all of our businesses, our infrastructure and colonize us. We thought, ‘Who cares, if all our bosses are foreigners, some of whom may hate us, even!’ In 1966 the Federal Reserve was blamed for a so-called “money crunch” because — having delayed too long to raise the discount rate in 1965, when we were arguing over the level of defense expenditures—ALWAYS, wars are the biggest deficit creators, by far and away!—after we did raise it, there was substantial disintermediation and a lot of other financial repercussions; and if we had ignored these dangers and followed the pure money supply theorists, I think we could have had 12, 14 and 15 per cent interest rates in 1966. But don’t forget, whether you liked or disliked the “money crunch/’ so-called, it did bring things to a halt in 1966 and it can bring them to a halt again. Whether it is the right way to bring it about or not is another question. Below is a Fed document showing what he is referring to here:
- June 10, 1965, Democratic Chairman of the House Banking Committee:
- This is the story of a man who can’t stand prosperity. Let me modify that statement — this is the story of a man who can’t stand prosperity for the many — itfs A-okay for the few. This is the story of the Federal Reserve Board’s Chairman, William McChesney Martin, who believes that it’s more important to restrict the money stock and credit of the nation, and increase interest rates, than it is to keep America prosperous.
- This is the story of a man who is defying the President of the United States by singing a siren song of pending disaster unless we take measures that run counter to the President’s, which will in fact insure the reality of that disaster.
- An important part of this story has to do with the remarkable advances of the economy under President Kennedy, and continued under Lyndon Baines Johnson. No apology is needed for 52 months of uninterrupted prosperity.
- Despite this 52-month record of unprecedented prosperity, the longest peacetime period of well-being in the Nation1s history, with 75 million, 100 thousand employed in this country, with our gross national product for the first quarter of 1965 running at an annual rate of $648 billion a year, compared to $622 billion for all of 1964 — with all of this magnificent achievement rolling along, from out of the woodwork comes the Chairman of the Federal Reserve Board to “CRY HAVOC.” .
There always is TREMENDOUS political pressure to have the Fed keep interest rates very low while the US government spends money like a drunk sailor in a whore house.
But the power is there. And everyone squeals and says, “Well, you shouldn’t discriminate against this industry or the other industry.” No, you shouldn’t; but if monetary restraint is to be effective, someone must feel it….
This is the cruel point: SOMEONE must suffer pain if we are to prevent either inflation or depression. Everyone suffers when we get out of control. But again: why is the US always going off the fiscal cliff?
WARS! And are people suffering because of our wars? You bet! Every assassin missile shot at some of the poorest people on earth costs a pretty penny. And each missile may kill some bride in Afghanistan but it is also killing our own government, driving us into bankruptcy, destroying the currency, destroying our futures.
Let me point out to you that I happen to believe that the dollar is stronger than gold. Here, the Fed head is demented! Utterly demented. I happen to believe that the dollar rests on the productive capacity and the ingenuity and the resources of the United States— not on gold per se. Alas, he was wrong. I don’t think there is any real question about that on the part of any thoughtful individual.
One year later, when the Vietnam War was grinding the US to dust, Martin Jr ceased this garbage of the dollar being better than gold. Fort Knox was rapidly being emptied even with the ‘dual value’ gold market set up by the dying British Empire and the very ill American Empire.
George Bernard Shaw, who is always stimulating and provocative but in my judgment not always too profound, used to say that if it was a choice between trusting gold or governments, he would take gold any day…
HAHAHA. Um, turns out the Bard was correct and the banker was deluded.
I was involved a week ago and again this past week end with the central banks of the Western World. We have been evaluating this problem of gold. There has not been any great flight from the dollar, but since the devaluation of the pound—where the British people were not willing to face up to these budgetary implications — there has been a tendency for people to assume that the United States was going to go blindly on its way in the same direction….
We trail after the Brits. We imitate them on every level including the effort to turn one of the world’s biggest industrial powers into a banker’s whorehouse. Note that Japan is still very much, an industrial power, one of the earth’s biggest industrial powers. The US and Britain chose the other road, the fake funny money route to instant wealth.
We are beset with two very serious deficits: a balance of payments deficit and a domestic budgetary deficit—both of which have run too far and too long. In the balance of payments deficit we have been driven or forced by necessity to the route of temporary expediencies.
And along with that has come to the community a feeling that there must be some way to get out of this bind of balancing your accounts. There are some of my friends — and good friends — who say the answer is to raise the price of gold, because if we raise the price of gold we can avoid — at least for a few months — the problem of putting our balance of payments in order. I think the time has come when we’ve got to forget this business of just trying to buy a little time for a few months.
The price of gold wasn’t raised. Gold was assassinated and replaced with the floatation devices made of paper.
Raising the price of gold is not going to solve the balance of payments problem. Raising the price of gold is not going to make our budget more manageable. It’s just another gadget, if that’s the course we follow. I don’t know what the price of gold is, or would be, as a commodity. I’m well aware of the mystique and the fetish of gold in the world and I have no thought of demonetizing it tomorrow. All I’m saying is that you have to keep this problem in perspective and recognize that in the long run there will not be enough gold in the world for use as the basis for currencies. All of our foreign friends realize and accept that, including the French….
There wasn’t enough gold IF we were aiming for constantly expanding our credit while based on trade deficits. The entire function of gold is to force a balance of trade! Instead, we decided to negotiate the relative value of the yen and DM in the hopes, this would fix our trade problems. Obviously, it failed. Despite constant failure, we keep doing this over and over again. Which is why I call on a gold standard, just to stop this!
I was very much impressed not long ago at a little fair in Lausanne in Switzerland when I went in to see an exhibit of money. The exhibit was not particularly spectacular, it wasn’t interesting me very much, until I got to the end and there they had a placard on the wall, which had written on it, in French, German and Italian (and in parenthesis in English) : “Good Money is Coined Freedom.” I’m not sure that we have fully appreciated that over here.
Back then, the Swiss believed in the Golden Goddess who kept inflation at bay. Then, the Swiss went mad and decided to imitate the pirate coves and other tax havens and Ponzi banking islands. So, they threw away gold and are now regretting this, immensely, as both Russia and China build gold reserves in preparation for reimposing the gold standard.
The world is not going to return to the old-fashioned gold standard, France notwithstanding…— but you will be reading that, after all, this was just a “created” crisis, that there’s really nothing to worry about here — we can spend our way into almost any position that we want…But the message that I’m trying to bring to you today, as strongly as I can, is that if we take that line, this country is going to go the same way that Athens went. There was a time in the world when the Athenian currency was exported all over the world, and stood as a more important asset than gold or silver or anything else. And yet in Athens’ final days of glory, its currency began to be dispersed around the world in such a way that people no longer had confidence in it, or in Athens itself…
So they artificially propped up the dollar. And this continues, to this day! Everyone wants to hold US debts and dollars but ONLY IF THIS GIVES THEM TRADE ADVANTAGES. The minute they feel, we can’t soak up any more credit and can’t buy any more Mercedes Benzes or Toyotas, boom! There it goes: down the tubes.
Worse, China can now unilaterally do this to us if we even hint of having a trade war or defending our trade base! We are trapped in this vise so what do we do? We start not one or two but several wars in the center of Asia! Wars we have zero chance of prevailing, over the long run. All parties there are watching, like wolves around a campfire’s far perimeter, watching us kill ourselves with too much debt.
Worse, there is a huge dragon watching us with unlidded eyes! And it certainly is clicking its claws in anticipation of disemboweling the US. Just trust me on this.