by John Mauldin, Mauldin Economics
ValueWalk
The ever more extreme antics of our central bankers keep forcing us to find new ways to describe them. My good friend Danielle DiMartino Booth does this by drawing an interesting historical parallel.
Danielle takes us back to the 20th-century era of World Wars and draws upon Liaquat Ahamed’s. The Lords of Finance. His work was inspired by that 1999 Time magazine cover story “The Committee to Save the World.” You may recall it: the lovely mugs of Alan Greenspan, Robert Rubin, and Larry Summers up there, grinning like the Cheshire Cat.
Danielle says that Ahamed’s work is “a study [of] the perils of devaluing stores of value by force, the dangers of runaway debts, and the menace of monetary myopia.” Franklin Roosevelt devalued the Depression-weighted US dollar by forcing up the price of gold. At the same time, Germany couldn’t pay its World War I debts. This set off a chain of defaults among US allies. The US then had to bail out Germany’s debt. Central bankers around the world began competitive interest rate rises. That move caused their countries to hold onto their dwindling gold supplies, even though the floundering global economy needed lower interest rates.