Thursday, October 30, 2003

Senholz On Saving the Dollar From Destruction

A snippet of 'Saving the Dollar from Destruction' by Hans F. Sennholz...

...A more optimistic scenario would be a gradual abandonment of the monetary policies and an orderly readjustment to unhampered market conditions. The Federal government would balance its budget in the next few years by holding the line on both transfer spending and military outlays. The Federal Reserve System would allow the market rate of interest to resume its basic function, the efficient allocation of economic resources in the course of time. A painful readjustment process would commence immediately; interest rates would rise, calling a halt to misguided spending patterns and encouraging saving and capital formation. Boom industries soon would suffer withdrawal symptoms while others would revive from several years of stagnation. At the same time, China and other creditor countries hopefully would allow their currencies to rise and the U.S. dollar to decline gradually, which would trim America's trade deficits, raise goods prices, and depreciate all dollar debt at home and abroad. With the Federal budget in balance and interest rates at market levels, the dollar would continue to function smoothly as the primary world currency.

Such a scenario would tell the truth about the international state of affairs. In world money markets a dollar depreciation of 30 percent would reduce the financial as well as nonfinancial American debt of $32 trillion by that percentage of purchasing power. It would diminish the three-trillion-dollar international debt burden of the U.S. government by one trillion dollars. American goods prices would rise at lesser rates, which undoubtedly would bring relief to all debtors while it would diminish the wealth of creditors. There are many ways of cheating a creditor. The United States government would use an old political ruse, the depreciation of its currency...

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