A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Friday, September 27, 2013

Economists warn on Europe, plus Tyler Cowen and the end of common sense

Today, a letter in the Financial Times, a warning from economists, and Tyler Cowen's new book.
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The economists’ warning
Financial Times, September 23 2013
The European crisis continues to destroy jobs. By the end of 2013 there will be 19 million unemployed in the eurozone alone, over 7 million more than in 2008, an increase unprecedented since the end of World War II and one that will stretch on into 2014. The employment crisis strikes above all the peripheral member countries of the European Monetary Union, where an exceptional rise in bankruptcy is also under way, whereas Germany and the other central countries of the eurozone have instead witnessed growth on the job front. This asymmetry is one of the causes of Europe’s present-day political paralysis and the embarrassing succession of summit meetings that result in measures glaringly incapable of halting the processes of divergence under way. While this sluggishness of political response may appear justified in the less severe phases of the cycle and moments of respite on the financial market, it could have the most serious consequences in the long run.

As foreseen by part of the academic community, the crisis is revealing a number of contradictions in the institutions and policies of the European Monetary Union. The European authorities have taken a series of decisions that have in actual fact, contrary to announcements, helped to worsen the recession and widen the gaps between the member countries. In June 2010, when the first signs of the eurozone crisis became apparent, a letter signed by three hundred economists pointed out the inherent dangers of austerity policies, which would further depress the demand for goods and services as well as employment and incomes, thus making the payment of debts, both public and private, still more difficult. This alarm was, however, unheeded. The European authorities preferred to adopt the fanciful doctrine of “expansive austerity”, according to which budget cuts would restore the markets’ confidence in the solvency of the EU countries and thus lead to a drop in interest rates and economic recovery. As the International Monetary Fund itself recognises, we know today that the policies of austerity have actually deepened the crisis, causing a collapse of incomes in excess of the most widely-held expectations. Even the champions of “expansive austerity” now acknowledge their errors, but the damage is now largely done.

The European authorities are, however, now making a new mistake. They appear to be convinced that the peripheral member countries can solve their problems by implementing “structural reforms”, which will supposedly reduce costs and prices, boost competitiveness, and hence foster export-driven recovery and a reduction of foreign debt. While this view does highlight some real problems, the belief that the solution put forward can safeguard European unity is an illusion. The deflationary policies applied in Germany and elsewhere to build up trade surpluses have worked for years, together with other factors, to create huge imbalances in debt and credit between the eurozone countries. The correction of these imbalances would require concerted action on the part of all the member countries. Expecting the peripheral countries of Union to solve the problem unaided means requiring them to undergo a drop in wages and prices on such a scale as to cause a still more accentuated collapse of incomes and violent debt deflation with the concrete risk of causing new banking crises and crippling production in entire regions of Europe.

John Maynard Keynes opposed the Treaty of Versailles in 1919 with these far-sighted words: “If we take the view that Germany must be kept impoverished and her children starved and crippled […] If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp.” Even though the positions are now reversed, with the peripheral countries in dire straits and Germany in a comparatively advantageous position, the current crisis presents more than one similarity with that terrible historical phase, which created the conditions for the rise of Nazism and World War II. All memory of those dreadful years appears to have been lost, however, as the German authorities and the other European governments are repeating the same mistakes as were made then. This short-sightedness is ultimately the primary reason for the waves of irrational-ism currently sweeping over Europe, from the naive championing of flexible exchange rates as a cure for all ills to the more disturbing instances of ultra-nationalistic and xenophobic propaganda.

It is essential to realise that if the European authorities continue with policies of austerity and rely on structural reforms alone to restore balance, the fate of the euro will be sealed. The experience of the single currency will come to an end with repercussions on the continued existence of the European single market. In the absence of conditions for a reform of the financial system and a monetary and fiscal policy making it possible to develop a plan to revitalise public and private investment, counter the inequalities of income and between areas, and increase employment in the peripheral countries of the Union, the political decision makers will be left with nothing other than a crucial choice of alternative ways out of the euro.

Emiliano Brancaccio and Riccardo Realfonzo (Sannio University, promoters of “the economists’ warning”), Philip Arestis (University of Cambridge), Wendy Carlin (University College of London), Giuseppe Fontana (Leeds and Sannio Universities), James Galbraith (University of Texas), Mauro Gallegati (Universit√† Politecnica delle Marche), Eckhard Hein (Berlin School of Economics and Law), Alan Kirman (University of Aix-Marseille III), Jan Kregel (University of Tallin), Heinz Kurz (Graz University), Alfonso Palacio-Vera (Universidad Complutense Madrid), Dimitri Papadimitriou (Levy Economics Institute), Pascal Petit (Universit√© de Paris Nord), Dani Rodrik (Institute for Advanced Study, Princeton), Willi Semmler (New School University, New York), Engelbert Stockhammer (Kingston University), Tony Thirlwall (University of Kent).

Tyler Cowan is out with a new book: Average is Over" on the impact of new technology on the economy. I have found Cowan to be widely quoted, avidly followed and not really worth listening. So I didn't read the book.

Cowan is an embarrassment to economics. The premise that disruptive technology will turn everyone into either collaborators with the robots or hapless victims of the changing economic order is nonsense. In interviews Cowen suggests that the slashing of jobs during the crisis and its aftermath was due more to sober CEOs looking down the road five, ten, fifteen years, then cutting the deadwood now.

A note from another source:
However, the more specific message of the book is rather sober: Cowen doubts that all that many people in America at least have the focus and capacity for work and concentration to turn themselves into complements for robots rather than being substituted by them. And so far there is certainly plenty of evidence that routine work in many sectors of the economy, in the middle-skilled, middle-income bracket, is being away by computerization, either directly through automation or indirectly through offshoring. About 60% of the jobs lost during the US recession have been in mid-wage occupations. Wages for the median male worker declined by about 28% between 1969 and 2009, this with no nuclear war, no asteroid striking earth, or other disaster. Nor is this disappearing middle of the income distribution just a US phenomenon: last week’s report on UK incomes from the Resolution Foundation pointed to similar evidence. Cowen writes: “The obvious and direct beneficiaries [of ever-more powerful computers] will be the humans who are adept at working with computers. … That means humans with strong math and analytic skills, humans who are comfortable working with computers because they understand their operation.” He argues that the scope of the phenomenon in the wider economy will only grow, pointing to driverless cars and taxi driver jobs, for example. Or think of those dreadful machines that are replacing supermarket cashiers.

You can perhaps begin to see why I don't listen to him very often. Is this pathetic explanation going to be the explanation for a reversion to feudalism?

Having not read the book and with no intention to do so, we offer up only the following observations:

One, the window of so-called average, mid-level prosperity, the middle class, opened in 1940 and began closing sometime in the 1980s. Previous human history, prior to the welfare state and big government, did not witness the prosperity of the common man.

Two, Productivity from the so-called technological disruption is not so much greater since the crash.

Three, Construction as in housing and physical infrastructure, teaching and health care, resists the kind of automation Cowan describes. If we ever start investing in public goods, we won't have to deal with the robots.

Four, The declining middle class we are now witnessing will take down the future middle class because of demand dynamics.

Five, The disparity in incomes is not at all the result of skill or robots, but of power, parentage and position. The 1% is not composed of technological geniuses, at least for the most part, but of the legacy rich and those who have learned to sell, manipulate or bargain. This disparity between what Veblen -- Thorsten Veblen -- called the industrial class -- the makers of things and providers of services -- and the leisure class -- the owners and sellers or resellers of things -- is what is returning after the short window of equality. The underclass is returning, not for any technological reason, but because of power arrangements, easily seen when wages don't follow productivity up, but profits and high-end non-worker incomes do.

Six, The future does not have to be made up like a science fiction novel, like Cowan does. It is right in front of us, with the collapse of the climate and the 1% in power. Technology is energy-intensive, the entrenched powers of fossil fuel industries not withstanding, absent a miracle breakthrough in energy -- which we have not seen and which is almost as unlikely as robot partners becoming the elite of the future -- and noting that the natural gas boom is not being captured for climate change mitigation -- absent a miracle, the climate collapse is another face of technological fetishism.

Seven, to any of those listeners who may be considering borrowing big to get education in one of these sure-fire upscale jobs, we remember the tech boom and some of our friends who took their computer science degrees to the help desk. We remember the finance boom and the six figure salaries right out of business school. So before you lever up to do something you don't really want to do, consider pursuing what you do what to do -- and our thanks to young environmental scientists and scholars for seeing what the future is really about -- maybe the trends will come back to you.

This was recorded prior to our hearing an On Point interview with Cowan. The following is an excerpt:


Thursday, September 19, 2013

Transcript: Larry Summers edition of Idiot of the Week

Today on the podcast, a No Comment report from the Washington Post on the withdrawal of Larry Summers from the race for Fed Chair, a return of our sometime feature, Idiot of the Week, featuring Mario Draghi, and to cleanse your palate, the keynote speech by Joe Stiglitz to the AFL-CIO convention.

Larry Summers edition of Idiots of the Week
Listen to this episode
Larry Summers withdraws

excerpted from the Washington Post
Summers helped Obama navigate the depths of the financial crisis and recession, providing a degree of support that Obama has told aides he deeply valued. No official, with the possible exception of former Treasury secretary Timothy F. Geithner, did more to influence the president’s response to the traumatic events he faced at the beginning of his term, which Obama plans to highlight this week as he marks the fifth anniversary of the financial crisis.

“Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today,” Obama said. “I will always be grateful to Larry for his tireless work and service on behalf of his country.”

It's been awhile since we visited this feature. We like to think of ourselves as serious economists, but economics science is to science what FoxNews is to news. Not to say there are not pretensions. There is a lot of math. There are serious people. Maybe its more like astrology. That said, let's get to it. Here with the chief European court astrologer, and Idiot of the Week, chief of the European Central Bank, Mario Draghi



Beginning with inflation. Inflation is a general phenomenon. When there is no wage growth, there is no inflation. Rises in commodity prices in the face of slack demand is not inflation, it is rises in commodity prices. When large chunks of the economy are excluded, such as financial markets, the inflation number is not useful. Yet controlling inflation as they define it is the sole mandate of ECB. To say that inflation is under control is like saying your hair hasn't turned gray, even if you are in a casket. Not reflective of your state of health.

Credit growth. The disconnect between M1 and M2 illustrates the fact that base money does not make credit money, credit growth makes credit money. Credit expanding is not good unless the other side of the balance sheet is expanding -- assets, productive assets. Private and public investment in infrastructure -- social and physical -- is nil. With depreciation, it is contracting. So any increase in credit growth means further debt overhang. This may be masked by increases in the prices of financial securities, but this is just an inflation that is not in the calculation. That is, bidding up asset prices -- here we are talking about liquid, financial assets -- is a trading phenomenon.

The note on the business cycle is bull. Without investment, there is no business cycle.

Weak banks are not lending, they are trading. The psychology of an insolvent bank -- and thanks here to Anat Admati and Martin Hellwig and their excellent and accessible book The Bankers' New Clothes -- the psychology of an insolvent bank, particularly one with a government guarantee, is to withdraw from useful lending, even to potential profitable enterprises, to cover up the bad loans it has already lent by pretending they are not bad and/or rolling over additional loans to the bad borrowers, and to gamble on resurrection in the financial casino. All these are enabled by a regulatory regime that is captured by the banks it serves -- the Fed in the US, the ECB in Europe. A banking union is a chimera floated by Draghi, a chimera primarily because the banks themselves will not allow it.

Focus on banks as a first condition. Banks first. It didn't work in the US, and it's not working in Europe. These institutions were the cause of the crisis and recession, yet the wholesale restructuring needs to be, according to Draghi, in the labor markets -- the so-called structural adjustments, and in the government sector. Driving down demand, imposing austerity, and no doubt continuing the stagnation and increasing the suffering on those with no power.

Draghi's reform agenda? Reduce deficits without taxing the rich.

The problem never was in the real economy. "Reducing rigidities and increasing flexibility" as well as "increasing competitiveness" is code for reducing wages. No matter that a growing body of evidence shows no connection between wages and employment. Demand Side says this is because wages support employment. Cheap money to banks does not.

And to confirm who was one of the authors and enforcers of austerity. Here from 2011, in the name of the confidence fairy and the nonsense of competitiveness in a stagnant economy.


Mario Draghi. Idiot of the Week!

Now, to cleanse your palate, or get the taste out of your mouth, at least, here is Joseph Stiglitz addressing the AFL-CIO.

Thursday, September 12, 2013


Demand Side Review:  Bouncing along the bottom with downside risks. No recovery in sight.

Also, Reinhart twins Carmen and Vince, lost in a sea of data, nothing useful to contribute, proven wrong time and again, yet still at the apex of the policy discussion.

Last week's piece on the Free Silver movement introduced us to the so-called long depression of the 1870s and the Great Sag that ran from 1873 into the 1890s.
Listen to this episode
Recessions used to be called depressions or panics, until the Great One came along and made the term toxic.

One can argue that the economy actually did better in the Great Depression, four years after Franklin Roosevelt took office, the economy was 62.6 percent above the day he started.  Similar results for Barack Obama, 15.6 percent. Employment was over 30 percent higher in 1937 than 1933. It barely gets to 3 percent higher in 2013 vs. 2009.  After four years of Roosevelt, the banking system was sound. Investment banks did not rule the world. Enormous mortgage debt had been renegotiated via the Homeowners Loan Corporation.

Now put on your tinfoil hats with me, and

Imagine what the current situation would be like without the automatic stabilizers and the social safety net created and installed in that period under FDR.

Now imagine that we had not wasted this crisis, we had written down excess mortgage debt along the lines of the Homeowners Loan Corporation rather than bailed out the financial operators who created it. Imagine that we had installed the programs to rebuild transportation and energy infrastructure, improve our schools and health care system, and not put these in the back of the file cabinet because they were not shovel ready.

What if we bought $85 billion of infrastructure bonds every month, instead of dodgy mortgage-backed securities and Treasury debt

No. That's not interference in your tinfoil antenna, it IS higher inflation. Obviously, if people are employed. But it is also higher private investment, strong small businesses, healthy tax receipts, and oh yeah, it's a wealthier economy by virtue of the investment.

Any visions of higher deficits and public debt ARE interference. Hard to get good tinfoil these days. Long term, even medium term, the deficits and debt are lower for the healthier economy, particularly if we tax the rich. And we have six percent real unemployment or lower, rather than fourteen percent. I am talking about the U-6 all-in measure. We have people working instead of holding cardboard signs.

And the investment is there, both public and private. We PRESUME the tax breaks and zero interest rates were designed to encourage investment, not just to enrich the already wealthy and to calm the hysterical matrons of the markets. Hasn't happened. Corporations quickly traded high interest debt for low interest debt, and that has helped their bottom lines. But investment. Not so much.

But without investment how else would they think it could help unemployment?  Could it really be the soc-called "wealth effect," where making stocks more pricey means people are fooled into thinking they have more money so they spend, and yes, it TRICKLES DOWN?

By the way, I saw the greatest cardboard sign down here at First South and Spokane. A tall, skinny young man capable of work was standing by the side of the road holding up a square ... of air. No cardboard.  Mime cardboard.  Fill in the blank.

But yes... now onto Carmen and Vince Reinhart.

Vince, How good are the Fed's forecasts?


No, not very good. Throw in the bull about the natural rate of unemployment, the equilibrium rate of interest and why should inflation be so low, hard to know. Why is inflation low? How about overcapacity, no investment and declining incomes among the majority of the population. And you see the complete bankruptcy of the economics practiced by Vince Reinhart and the orthodoxy that runs the show.

It makes my skin crawl to hear people talk about the natural rate of unemployment. Doesn't exist. Can't find it in the data, only in the -- hey Vince, here's my tinfoil hat.  It looks so natural on you.

The equilibrium rate of unemployment. Phooey. That was exploded by Keynes, what, eighty years ago. Interest is not where the demand and supply of money cross, it is the price of convincing people not to hoard, except when the Fed sets it.

So, How good are the Fed's forecasts?  They are miserable. You would do better to listen to them and bet the other way. And Vincent Reinhart is the former head of research for the Greenspan Fed. That is why we are stuck in zero percent interest. Because the Fed could not see that it would not work. Or more rightly, was convinced it would work and will work and predicted so, and it is always just over the horizon.

At the onset of the recession, the line was "The Fed will do whatever it takes to avoid recession." Two years later it became, "There is only so much the Fed can do." Now it is, "The Fed doesn't have the tools." Well, we know it sure cannot forecast. Doesn't have the tools for that. Demand Side's funky little PC and old copy of Excel seems to do better. Of course, we have another tool -- a realistic theory of the economy, one that does not assume equilibrium and has a role for -- hold onto your hat, Vince -- money, credit and banking.

Okay, on to Carmen Reinhart, who you will remembered authored a book with Kenneth Rogoff.  This Time is Different: Eight Centuries of Financial Folly, which advocated austerity by governments, because when government debt gets to 90% of GDP, it is followed by a declining economy.


Ah, my mistake. On the other hand, you were feted in the press without contradicting the austerity prescription. Which turned out to be a bonehead mistake on a spreadsheet and some foolish assumptions. And that Eight Centuries of Financial Folly part, that was ...


Mmm.  I guess you have a new paper out called The Road to Recovery?


Ah, strong recovery here, but not abroad?


What about those who say this was not a bolt from the blue, but the result of debt, that is leverage?


Ah. Bubbles will happen. Good news on the inflation front, though. Debt is high. Unemployment is high. Stagnation is the order of the day. No investment. But inflation is low.  Could they be connected?


Eight centuries of financial folly continues, not in the form of government debt, but in ignoring the policies that worked.

Friday, September 6, 2013

Transcript: Two or Three Or Four Economies, or economic classes, Sept 6, 2013

Today, The resilient US consumer rant from Lee Adler
Some notes on aggregation, with the assistance of Jared Bernstein
and a bit of the history of money, the free silver movement that nearly took the White House
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The Resilient U.S. Consumer Myth

by Lee Adler, Wall Street Examiner

That’s right folks, US consumers are doing just great. In fact, on a real per capita basis, retail spending (ex-gasoline sales) in July was up 3.9% from last year and up 7% from the July 2009 recession low. In fact real retail spending per capita has recovered all the way back to where it was in 1997. That’s right, the average US consumer is consuming retail goods at the same rate he or she was just 16 years ago.

The mob is only concerned with how top line retail sales did this month. They’re really looking at inflation and total spending as driven by the spending of the top 10%, not growth in the volume of sales, and not broader growth in real demand.

The idea of the “resilient US consumer” is a myth. Only the top 10% is resilient. The other 90% is losing ground. Real Retail Sales ex-Gasoline Per Capita for July 2013 was $659.98 in 1982 constant dollars. That was 3.9% above the year ago level. That sounds great, but months with big gains tend to be followed by givebacks in succeeding months. The 7% total gain over the past 4 years is probably a more accurate representation of the trend. The real rate of growth is at a snail’s pace, and some of that comes from external factors, not increased spending power of the typical US consumer.

Retail sales per capita are skewed by increased spending by the top 10% of the income spectrum, and by shopping tourism as foreigners come to the US to shop to take advantage of a weak dollar or lower prices. For example, Canadians cross the border in droves to shop in the US. With the Canadian dollar recently weak versus the US dollar, that trend increases.

Then there is the “wealth effect” that accrues to the small percentage of US Americans who actually own stocks, or a house that isn’t under water. Bernanke’s stock market bubble has disproportionately benefited the few who own stocks. No doubt they’re spending more, and some of this is trickling down to the jewelry store clerks and luxury car salesmen that serve them. But it’s clearly not helping the millions who work at WalMart and competing retailers and those who supply those chains, as their wages stay stuck near minimum wage, with fewer hours and even fewer benefits. It’s highly likely that most of the increase in real spending has come from those at the top, not the majority, who simply struggle to pay the bills as their wages are suppressed in a system where labor consistently trends toward a lower value.

Considering this data ask yourself how the Fed’s money printing, which has clearly fomented asset bubbles in stocks and housing, would help more Americans get good paying jobs that will enable them to halt the long term slide in their standard of living. The last bubble in housing did not do that. In fact, it made things worse for most Americans. Only the savvy speculators and crooked banksters at the heart of the easy money driven Ponzi scheme did better. Everyone else simply treaded water through the bubble. Then when it collapsed, they got crushed. Most people have not caught up during this “recovery” phase.

Why would the Fed expect the effects of the the bubbles it has blown this time to be any different? That just defines insanity. Declaring that the economy is doing better and using that as an excuse to reduce QE, as it appears they are about to do, would be just as delusional, and dishonest to boot. I guess we just have a bunch of crazy liars making policy.
That from Lee Adler

Now from Jared Bernstein and Tom Keen via Bloomberg:


Every once in awhile data series conflict. In the case of most aggregate data and the measures of economic disparity, they have come together in a train wreck.

GDP, at two percent growth, savings rates up from the pre-crisis levels, aggregate income growing, top line unemployment trending down. Do these data really describe the economy in which we live? Now, I am not talking about the shortcomings of GDP as a measure of well-being in terms of not accounting for environmental degradation or resource depletion, treating bads as goods, treating the product of the health care sector as the sum of inputs rather than measuring output, things like that. This is simply a problem of aggregation.

Income disparity -- the difference between the rich and the poor -- the 1% and the 99% -- that gap is grotesquely wide. Even more so with wealth disparity. It's a tale of two economies, and aggregating the data convinces us we are in recovery rather than sailing toward the edge in a damaged ship.

Were we really growing at 2%, wouldn't we have investment, capacity back to normal, reduced dependence on the safety net? Instead with have companies buying back stock, not investing, and record high use of food stamps and disability.

From the demand side, it is the middle class economics that matters. This is the support to investment, both private and public, as it bolsters consumer demand and tax receipts. Strength in the middle class is stabilizing. The effect of stimulus and of increasing private investment as well, depends on the propensity to consume. A stimulus which is immediately saved is not a stimulus, because it does not cause any further economic action. Thus the Bush 2008 tax cuts went to pay down debt, increase savings, or was spent on cheap imports. No boost. The ineffectiveness of monetary policy based on interest rates is that it cannot get below the price at which investment is profitable, because there is no demand for investment and plenty of current capacity that is cheaper than any new capacity.

But a coherent statistical description is not, as Jared Bernstein says here, merely a matter of taking it down to the household level. Rather, it is a matter of class. Aggregation conflates the whales with the minnows and comes up with salmon that do not exist. Class level: the poor, the working class, the professional class, the elites. Characterizing economic behavior by class is valid because people within them share financial and social conditions and respond to them in broadly similar ways. There is no representative agent for the entire economy, but there are representative agents for broad classes.

And the economy responds to class. As we said, a broad middle class has been shown -- at least by history -- to be strong, stable and vigorous. The structure we now have, a prospering elite, topped by the super-rich, alongside a substantial impoverished population and a contracting middle class has been shown -- again by history -- to be fragile and unstable, both socially and economically.

The high-savings rich are withdrawing spending from the society, even as their incomes increase. High household debt among the middle class is reducing spending. Both reduce the multiplier. When government doesn't invest directly and businesses don't invest, excess savings by some mean reduced income to others. But we sail on. Two percent GDP is not great, but it is positive. Too bad it is meaningless.

Now to the Gold Standard. For another project I did some research on money and the gold standard. The following is an excerpt tied to the Free Silver movement of the last three decades of the 1800's.

The Free Silver Movement.
Silver was the common standard for money between the fall of the Byzantine Empire and the end of the 18th Century. The colonies and early states relied on pieces of eight for currency, a silver coin minted in Mexico. (The two vertical lines through the S on the dollar symbol $ are derived from this period. Pieces of eight were legal currency in the U.S. until 1857.

The silver stocks of the new American state were depleted rapidly in payment for the Revolutionary War, and gold came into common usage. With big silver strikes in the West, however, silver made a resurgence as a commodity money until the Coinage of Act of 1973, when it was excluded from the money supply in favor of gold. Called “the Crime of 1873” by advocates of silver, the Act was accompanied by the onset of the Long Depression of 1873 – 1879, and the Great Sag or the Great Deflation which lasted into the 1890s, and by a polarizing confrontation between the moneyed interests of the Northeast, including the Robber Barons and the titans of Wall Street, and the Populist farmers of the South and Midwest who aligned with the silver miners.

Enormous economic hardship visited farmers, whose debts increased in real terms with the deflation caused by a money supply restricted to gold. Increasing production to attempt to meet debt obligations only lowered farm prices. In 1896 a 36-year-old Congressman from Nebraska addressed the Democratic national convention and delivered by many accounts the most famous speech in American political history, the “Cross of Gold” speech, which concluded:
“If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”
Opponents, including the leadership of the Democratic Party, did not oppose bimetallism on principle, but on the premise that it could only be arranged by international agreement. Bryan ran a strong campaign, but lost to William McKinley, and the gold standard remained in place into the 1930’s. Then it was repealed and eliminated virtually overnight.

Franklin Delano Roosevelt came into office in early March 1933 with the plan to repeal the gold standard firm in his mind, in spite of the collected wisdom of his advisors. One called it, “the end of Western civilization.” [FN] Roosevelt was determined to “take control of the currency.” He pointed to the hoarding of gold by individuals as a root to the run on the banks that threatened the entire system. First FDR imposed a bank holiday, closing the banks for a short period, and reopening only those which were viable. He then directed that all gold coin and bullion be returned to the Federal Reserve. He abrogated the gold clauses in private and public contracts that required payment in gold. The federal government became the only legal holder of gold, so while its value was set at $35 per ounce, it was a meaningless number to those within the country. These and other moves allowed the volume of currency to expand. A good majority of economists now counts the repeal of the gold standard, expanding the money supply and reversing the deflationary cycle as the most important single step to recovery.

Although it was illegal for citizens to own gold, foreigners could redeem dollars received in trade at the Fed’s “gold window” until 1971, when President Richard Nixon took away any convertibility and allowed the dollar to float against other currencies. The dollar became the “reserve currency.” The practice of converting dollars gained in trade to gold changed to converting them to interest-bearing Treasury bonds, and this is the source of the debt now owed to America’s trading partners.