Sol Sanders Archive

This Armageddon, and others not that long ago

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It gets widespread support — from “special interests” [yours and mine] to the bond rating agencies who failed so miserably in the 2007-08 financial crisis. Mind you, those agencies should also be warning us the outlook for American government securities is grim if Washington doesn’t surgically go after its runaway spending and unsustainable deficits. [Shame on old friend Stuart Varmey for not making that clear on Fox News during one of Bill O’Reilly’s tantrums.]

On August 15, 1971, President Richard M. Nixon unilaterally, repeat unilaterally, suspended theoretical convertibility of the dollar into gold, set a new lower rate, and demanded our trading partners raise their own currencies. In December 1971 they gathered at the Smithsonian to sign on; there wasn’t a lot they could do. By the way, it didn’t work: two years later, Washington again realigned gold and the world set off on fluctuating currencies tied to the dollar which it has tried to maintain ever since.

Mind you, yes, of course, it was a different world. Europe and Japan had recovered from World War II but weren’t admitting it. Japan was running up huge dollar holdings, sucking away American manufacturing jobs, much as China today. But the U.S. was seen as cock of the walk with strong – if sometimes knuckle-headed – leadership. [That was long before President Barack Obama spent two years “leading from behind”, denigrating America’s past, its uniqueness and its leadership role.] President Nixon and his president-aspirant Sec. of Treasury, blustering Big John Connally, slapped on wage and price controls, a calamity abandoned three years later when inflation hit double digits. But, in effect, “the Nixon Shocku” [as the Japanese who got caught flat-footed called it] had chopped its creditors off at the ankles.

Perhaps the most significant difference, among many, from those days is a world crisis in every theater. The Euro, a figment of Brussels bureaucrats’ imagination without EU unified fiscal and monetary policy control, is on the ropes. Sterling is in equally bad straights with the UK trying to dig out of more debt than any other industrial country.

The Japanese, borrowing yen from themselves with abandon for a quarter of a century, now face mammoth new reconstruction with the world’s fastest aging population. China, with its deus ex machina of unlimited infrastructure expansion, subsidized exports and a walled-in market, is slamming on the yuan brakes against incipient inflation. India faces runaway inflation with its rupee investors taking their capital elsewhere because they don’t see massive reform of a former Soviet-bent East India Co. system. Mideast sheikhs are squandering their [and our] petrobillions in the same old way.

Things look disastrous in Washington, but bottom line: compared to whom?