HON. RON PAUL
OF TEXAS
IN THE HOUSE OF REPRESENTATIVES
Wednesday, June 24, 1998
1998 Ron Paul 65:1
Mr. PAUL.
Mr. Speaker, it has recently
come to my attention that James Grant has
made a public warning regarding monetary crises. In an Op-Ed entitled “Every Currency
Crumbles” in The New York Times on Friday,
June 19, 1998, he explains that monetary crises
are as old as money. Some monetary systems
outlive others: the Byzantine empire
minted the bezant, the standard gold coin, for
800 years with the same weight and fineness. By contrast, the Japanese yen, he points out,
is considered significantly weak at 140 against
the U.S. dollar now to warrant intervention in
the foreign exchange markets but was 360 as
recently as 1971. The fiat U.S. dollar is not immune
to the same fate as other paper currencies. As Mr. Grant points out,
“The history
of currencies is unambiguous. The law is,
Ashes to ashes and dust to dust.”
Mr. James Grant is the editor of Grant’s Interest
Rate Observer, a financial publication,
and editorial director of Grant’s Municipal
Bond Observer and Grant’s Asia Observer. He
has also authored several books including the
biographical “Bernard Baruch: Adventures of a
Wall Street Legend”, the best financial book of
the year according to The Financial Times
“Money of the Mind: Borrowing and Lending in
America from the Civil War to Michael Milken”,
“Minding Mr. Market: Ten Years on Wall
Street with Grant’s Interest Rate Observer”
and “The Trouble with Prosperity: The Loss of
Fear, the Rise of Speculation, and the Risk to
American Savings”. He is a frequent guest on
news and financial programs, and his articles
appear in a variety of publications.
[From the New York Times, June 19, 1998]
EVERY CURRENCY CRUMBLES
(By James Grant)
Currencies, being made of paper, are highly
flammable, and governments are forever trying
to put out the fires. Thus a half decade
before the bonfire of the baht, the rupiah and
the yen, there was the conflagration of the
markka, the lira and the pound. The dollar,
today’s global standard of value, was smoldering
ominously as recently as 1992.
1998 Ron Paul 65:3
Monetary crises are almost as old as
money. What is different today is the size of
these episodes. It isn’t every monetary era
that features recurrent seismic shifts in the
exchange values of so-called major currencies. On Wednesday morning, after coordinated
American and Japanese intervention,
the weakling yen became 5 percent less
weak in a matter of hours.
1998 Ron Paul 65:4
People with even a little bit of money
ought to be asking what it’s made of. J.S.G. Boggs, an American artist, has made an important
contribution to monetary theory
with his lifelike paintings of dollar bills. So
authentic do these works appear — at least at
first glance, before Mr. Boggs’ own signature
ornamentation becomes apparent — that the
Secret Service has investigated him for
counterfeiting. “All money is art,” Mr. Boggs has responded.
1998 Ron Paul 65:5
Currency management is a political art. The intrinsic value of a unit of currency is
the cost of the paper and printing. The stated
value of a unit of currency derives from
the confidence of the holder in the promises
of the issuing government.
1998 Ron Paul 65:6
It cannot undergird confidence that the
monetary fires are becoming six- and seven-alarmers. Writing in 1993 about the crisis of
the European Rate Mechanism (in which
George Soros bested the Bank of England by
correcting anticipating a devaluation of the
pound), a central bankers’ organization commented:
“Despite its geographical confinement
to Europe, it is probably no exaggeration
to say that the period from late 1991 to
early 1993 witnessed the most severe and
widespread foreign exchange market crisis
since the breakdown of the Bretton Woods
System 20 years ago.” But the European crisis
has been handily eclipsed by the Asian
one.
1998 Ron Paul 65:7
Monetary systems have broken down every
generation or so for the past century. The
true-blue international gold standard didn’t
survive World War I. Its successor, a half-strength
gold standard, didn’t survive the
Great Depression. The Bretton Woods regime
— in which the dollar was convertible
into gold and the other, lesser currencies
were convertible into the dollar — didn’t survive
the inflationary period of the late 1960’s
and early 1970’s.
1998 Ron Paul 65:8
Today, the unnamed successor to Bretton
Woods is showing its years. The present-day
system is also dollar-based, but it differs
from Bretton Woods in that the dollar is no
longer anchored to anything. It is defined as
100 cents and only as 100 cents. Its value is
derived not from a specified weight of gold,
as it was up until Aug. 15, 1971, but from the
confidence of the market.
1998 Ron Paul 65:9
For the moment, the market is highly confident. So is the world at large. In 1996, the
Federal Reserve Board estimated that some
60 percent of all American currency in existence
circulates overseas. The dollar has become
the Coca-Cola of monetary brands.
1998 Ron Paul 65:10
However, as Madison Avenue knows as well
as Wall Street, brand loyalties are fickle. In
the early 1890’s, the United States Treasury
was obliged to seek a bailout from the Morgan
bank. During the great inflation of the
1970’s, Italian hotel clerks, offered payments
in dollars, rolled their eyes. The yen, today
reckoned dangerously weak at 140 or so to
the dollar, was 360 as recently as 1971. The
tendency of the purchasing power of every
paper currency down through the ages is to
regress. Is there any good reason that the
dollar, universally esteemed today, should be
different?
1998 Ron Paul 65:11
None. Certainly, the deterioration of the
American balance-of-payments position
doesn’t bode well for the dollar’s long-term
exchange rate. Consuming more than it produces,
the United States must finance the
shortfall. And it is privileged to be able to
pay its overseas bills with dollars, the currency
that it alone can legally produce. Thailand would be a richer country today if
the world would accept baht, and nothing
but baht, in exchange for goods and services. It won’t, of course. America and the dollar
are uniquely blessed.
1998 Ron Paul 65:12
Or were. France and Germany have led the
movement to create a pan-European currency,
one that would compete with the dollar
as both a store of value and a medium of
exchange. The euro, as the new monetary
brand is called, constitutes the first serious
competitive threat to the dollar since the
glory days of the pound sterling.
1998 Ron Paul 65:13
In a world without a fixed standard of
value, a currency is strong or weak only in
relation to other currencies. The dollar’s
“strength,” therefore, is a mirror image of —
for example — the yen’s “weakness.” It is not
necessarily a reflection of the excellence of
the American economy.
1998 Ron Paul 65:14
And no degree of excellence can forestall a
new monetary crisis indefinitely. Some monetary
systems are better than others, and
some last longer than others, but each and
every one comes a cropper. The bezant, the
standard gold coin of the Byzantine empire,
was minted for 800 years at the same weight
and fineness. The gold may still be in existence
(in fact — no small recommendation for
gold bullion — it probably is), but the empire
has fallen.
1998 Ron Paul 65:15
After the 1994 crisis involving the Mexican
peso, the world’s financial establishment
vowed to stave off a recurrence. Even as the
experts delivered their speeches, however,
Asian banks were overlending and Asian
businesses were overborrowing;
the credit-cum-currency eruption followed in short
order. Naturally, officials and editorialists
are now calling for even better fire prevention
systems.
1998 Ron Paul 65:16
But “stability,” the goal so sought after, is
ever unattainable. The history of currencies
is unambiguous. The law is, Ashes to ashes
and dust to dust.
Notes:
1998 Ron Paul Chapter 65
The text of this chapter was inserted in the section of CongressionalRecord entitled “Extensions of Remarks” and was not spoken on the House floor.
1998 Ron Paul 65:7 correcting anticipating a devaluation of the pound
probably should be correctly anticipating a devaluation of the pound .
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