Dollar: Way To Go
The price of gold reached below $740/oz this week, which is almost half the trek from its trough above $1,000/oz earlier this year to equilibrium near $500/oz. This is real progress and is to be credited to two primary influences. First, genuinely bipartisan interest among the ranks of Congress in manipulation of oil prices has brought a decline in energy costs that aids economic growth and boosts demand for dollars. Second, the Federal Reserve appears to be maintaining a stable monetary base by adding no net new liquidity.
In this circumstance, the key to achieving dollar stability (assuming continuation of Federal Reserve funds rate manipulation) without inflation (meaning gold at $500/oz or lower) is effective legislative action to stop manipulative practices in crude oil futures and options trading. If Wall Street prevails and Congress fails to act, oil prices will rise again and the dollar will decline against gold. That will mean increasing inflation and, most likely, higher interest rates with lower economic growth.
On the positive side, Rep. Ted Poe of Texas on July 31 introduced legislation (H.R. 6690) that would require the Federal Open Market Committee to follow a money rule in managing dollar liquidity. Specifically, the bill would mandate that FOMC manage liquidity to stabilize the dollar’s value at $500/oz of gold. This is the solution required to take back congressional control of the currency from the central bank owned and dominated by pecuniary interests which operate it for their private gains. Readers of The Supply Side Guide will recognize this legislation as the monetary reform recommended here for years. Best wishes for the congressman in gathering co-sponsors and moving the bill through adoption. Do not be surprised, however, when the Federal Reserve and Wall Street pull all stops in efforts to prevent its passage. ~
By Wayne Jett