Published February 9, 2011
Is Wikileaks founder Julian Assange channeling Don Draper in the TV series Mad Men –– the brilliant but ethically challenged publicist with retro lifestyle issues? Assange got the Daily Telegraph breathlessly to report an old June 2009 “confidential” cable from the U.S. London Embassy to the U.S. Treasury, State Department, Beijing and Moscow embassies, headed “LONDON-BASED EXPERTS AGREE THE U.S. DOLLAR WILL MAINTAIN ITS RESERVE STATUS.”
Its significance was hardly that HSBC and Deutsche Bank economists’ prognosis of stumbling-along-further had endorsed Treasury Secretary Timothy Geithner’s policy of Managing American Decline (MAD). At most it was that U.S. monetary authorities hadn’t yet spelled out to U.S. diplomats why “recent proposals to make the SDR a global reserve currency lacked viability.” This has long been obvious to investment newsletters like HSBC’s Currency Outlook and Grant’s Interest Rate Observer (and LBMC’s Market Watch), which undertake basic analysis that U.S. monetary authorities do not. (‘Special Drawing Right’ is a paper money reserve issued by the International Monetary Fund.)
Since the dollar standard isn’t sustainable and the SDR isn’t viable, the next successful U.S. president will undertake the remaining practical alternative: restoring the gold standard without reserve currencies. The chart below compares the U.S. dollar against gold, the yen and Euro/DM since monetary ‘experts’ famously predicted in the ’60s that gold would fall from $35 to $6 an ounce if it were demonetized. Instead, the gold price multiplied forty-fold while the dollar slid against other currencies.
John D. Mueller is the Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center.