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April 18, 2019 | The Fed and the Professor Standard! Herman Cain!

Donald B. Swenson: Born January 24, 1943, Roseau, Minnesota. Graduated H.S. 1961, Moorhead High, Minnesota. Graduated College 1968, Moorhead State University, Minnesota. Designated member of Appraisal Institute (MAI), 1974. Employed with Western Life Insurance Company, 1968 – 71; Iowa Securities Company, 1971 – 73; American Appraisal Company, 1974 – 81. Part-time teacher/valuation consultant/bartender, 1979 – 2008 (taught workshops at Waukesha County Technical Institute, Wi. and Madison Area Technical College, Wi.). Retired 2008 (part time teacher/blogger), AZ. Self educated economist/philosopher/theologian:

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Today’s Wall Street Journal had an article by Mr. Herman Cain, Trump’s proposed candidate to join the Fed, on issues of economic policy. Let’s think about this viewpoint of Mr. Cain and his idea that we need a commodity standard to stabilize the American dollar. Does Mr. Cain understand our current real-time marketplace?


Mr. Cain claims that our current Fed follows the ‘Professor’s Standard’ for managing the American Dollar. This Professors Standard does not seek out real-time market conditions but looks mostly at lagging indicators to make policy decisions. He blames the Fed for acting to late after a crisis and this creates unnecessary volatility and instability within all our markets.


What Mr. Cain advocates is a stable dollar which follows a commodity standard (presumably gold’s value). Mr. Cain says “had the Fed reacted to the dollar’s commodity value coming out of the recession (of 2008) it wouldn’t have inflated the real-estate bubble, which led to the 2008 crisis.”


Mr. Cain says “after June 2008, the dollar’s skyrocketing commodity value was screaming that there was a sudden, huge, global scramble for dollar-based liquidity. Unfortunately, the market’s cry fell on deaf ears, apparently because the signal hadn’t yet registered in the Fed’s lagging employment and consumer-price indicators.” The result was the deflation which ensued.


My sense is that Mr. Cain wants the Fed to stabilize the dollar based on watching gold’s value (keeping the gold price stable). The problem with this mindset is that our current dollar (now a virtual unit of nothing) can not be stabilized via a commodity standard (such as gold) without defining this unit (precisely) and then allowing convertibility of the unit.


To stabilize our virtual dollar would require that we have an official definition of this dollar and then the market would require convertibility of this dollar at a fixed price. Does Mr. Cain understand this reality? My sense is that he doesn’t. His idea of a stable dollar that is based on a commodity standard is pure fiction (given how our current system operates in real-time). But his general idea should be discussed and considered within the halls of policy-making. His general idea has merit for discussion IMO.


Later in this article, Mr. Cain complains that the Fed did not impose its quantitative easing policy until much too late (he implied that the deflationary economy which followed 2008 was the result of our Fed’s lack of action to ‘put out the fire’). He says “show me a financial crisis that happened in America while the dollar’s commodity value was stable”.


Let’s think further about Mr. Cain’s view on a stable dollar via a commodity standard. Can this work without ‘tying’ (defining) the dollar to gold (and making the dollar convertible)? I don’t think so. We now have a virtual dollar which derives from the mind of bankers. Loans are made by merely typing new numbers into a client’s account. The virtual units are derived from the banker’s thinking.


Quantitative easing (what I call ‘official counterfeiting’) is accomplished by typing new numbers into the SOMA account and then buying assets with these virtual dollars. Does Mr. Cain understand any of this? His so-called Commodity standard is no better than the current Professor Standard (given what has transpired since 1971). Both would merely manipulate dollar supply by subjective means.


Mr. Cain concludes that the best way for the Fed to stabilize the dollar is via a commodity standard (whatever this means in practice) in contrast to the current professor’s standard (using lagging indicators). He wants to add his voice to the Fed if he gets appointed to this policy-making body so America can grow real income for the 90% who are left-out of America’s economy. I would support his goal to become part of the Fed (his ideas would promote discussion).


You can read Mr. Cain’s article on page A17 of Thursday’s, April 18, Wall Street Journal. I personally hope Mr. Cain gets appointed to the Fed as he does have some good ideas overall. I do not think his so-called commodity standard idea, however, will work without making our virtual dollar a fixed weight of gold (by definition) and then allowing convertibility of the dollar within a free marketplace.


My sense is that our days of dollar stability are impossible to realize given what has transpired these past 48 years since the closing of the gold window on August 15, 1971. The game of virtual money (which is now global) has changed all markets and this change can not be reversed IMO given the global nature of our internet society today. We must live with digital/cyber/virtual money until the system crashes and collapses. We can then review the history and develop a new model for the world economic system.


Have a good day and let’s keep learning from what is happening within our global cyber markets. Everyone can add to the discussion on these complex issues of life. P.S. Mr. Donald Trump said recently that the Dow Index should be up another 10,000 points. Under Trumponomics the U.S. stock markets are up some $9.1 trillion or 35.6% since his election.Trump now wants the Fed to lower interest rates and start more counterfeiting of our dollar (QE). What world does he live in? I am:

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April 18th, 2019

Posted In: Kingdom Economics

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