CFR Endorses Weak USD & Market Intervention

Lee Rogers
Rogue Government
November 13, 2007

The Council on Foreign Relations which is the Rockefeller family funded think tank that endorses globalization, the end of U.S. sovereignty and other collectivist ideals, has reached a new low. Benn Steil the senior fellow and Director of International Economics for the CFR recently wrote an article that declares national currencies obsolete because of globalization. In addition, Brad W. Setser another member of the CFR who specializes in economics endorsed the idea of the Federal Reserve and the European Central Bank manipulating markets. He also downplayed the importance of a strong U.S. Dollar. It is particularly alarming that economists in this think tank are endorsing these collectivist and anti-American ideals considering the CFR’s influence in Washington DC. The following is taken from Benn Steil’s National Post article entitled “Globalization Makes National Currencies Obsolete” which is quoted below.

The right course is not to return to a mythical past of monetary sovereignty, with governments controlling local interest and exchange rates in blissful ignorance of the rest of the world. Governments must let go of the fatal notion that nationhood requires them to make and control the money used in their territory. National currencies and global markets simply do not mix; together they make a deadly brew of currency crises and geopolitical tension, and create ready pretexts for damaging protectionism. In order to globalize safely, countries should abandon monetary nationalism and abolish unwanted currencies, the source of much of today’s instability.

This assertion from Benn Steil is false. Today’s instability is not the result of national currencies and the onslaught of globalization. Instead, today’s economic instability is the result of the fact that currencies are literally created out of thin air by the central banks and have zero value. This allows the central bankers and the economic elite to manipulate markets in order for them to consolidate wealth in the hands of the few. The booms and busts are a result of central bankers manipulating interest rates. Take for example the artificially low interest rates set by Alan Greenspan in the early part of this decade. As a result of the price fixing, Greenspan engineered a housing boom, which is now being followed by a housing bust. A financial system in which the free market dictates what money is and what money isn’t and where gold and silver is the only legal tender would create a stable economic system much like what we saw in the United States during the 19th century. No central banker or economist is smarter than the free market and it is alarming that financial elitists like Steil don’t seem to understand that. Today’s economic instability arises from the fact that we don’t have an honest monetary system. It is really that simple.

This article is simply propaganda from Steil in order to make people feel more at ease with the elimination of their national currency and the replacement of one that is regional in scope. Steil is a collectivist who hates the idea of nation’s controlling the issuance of their own money because it makes it more difficult for the central bankers and the elites of the world to control everything. Regional currencies make it easier for the central bankers to have control over large regions of the world because they only need to manipulate one currency instead of many. It also favors the big multinational corporations who have grown and expanded as a result of fascist trade policies that have been pushed through by the world’s elites.

The insanity from the CFR continues in an interview with fellow CFR member and economist Brad W. Setser that was published on their web site. In the interview Setser is asked about the power governments have to control their currencies. Here is what he said.

How much power do governments have to control the value of their currency internationally?

There are two components to that. One is what sort of power does the U.S. government have, and by that I specifically mean the U.S. Federal Reserve. Most people believe that short-term interest rates do have a meaningful impact on the relative value of different currencies. So monetary policy can be used to defend a country’s currency. The real question there is should it be used to defend a country’s currency, or should monetary policy be directed at domestic objectives. Certainly most economists’ views, and I share that view, is that the core goal of U.S. monetary policy should be stabilizing U.S. domestic conditions, not trying to stabilize the value of the dollar. So the policy tool the U.S. has that most obviously would impact the value of the dollar right now is not used to stabilize the exchange rate, it’s used to stabilize domestic conditions in the U.S. And given that right now domestic conditions in the U.S. are such that policy interest rates have come down, that’s actually working against the dollar.

Then I think on the other side, the dollar is being supported, even now, by the resistance in many Asian economies—not just Asia, also many emerging economies around the world—to any strong increase in the value of their currencies against the value of the dollar. And by intervening to hold their currencies down, they are in effect holding the dollar up, not necessarily against the euro but against their own currencies. So I certainly think that has an impact.

Setser believes that U.S. monetary policy should be focused on stabilizing U.S. domestic conditions and not trying to stabilize the value of the USD. This is a completely ridiculous statement from an economic standpoint as U.S. domestic conditions are tied directly to how much the USD is worth. If you devalue the USD to zero, you are going to have very poor domestic conditions because everyone’s wealth stored in bank accounts will be erased. A devaluing USD results in the middle class and the poor in this country being robbed blind through inflation. The only way Setser’s statements make any sense is if the domestic objectives of the Federal Reserve and these elites are to consolidate more wealth into the hands of the rich through inflation and to eliminate the USD in favor of a regional currency.

Setser goes on in his next statement endorsing the idea that the big central banks should be allowed to intervene in the foreign exchange markets.

Is there any situation in which you think U.S. intervention to stabilize the dollar would be appropriate?

We have to differentiate between a decision on the part of the Fed to direct its monetary policy toward supporting the dollar, which I don’t think would be appropriate. It’s also not really consistent with the Fed’s mandate. But I do think it’s appropriate for the Fed to consider how a weak dollar might impact its ability to achieve its domestic goals—including the goal of price stability—which provides a context in which the Federal Reserve might be less willing than it otherwise would be to reduce U.S. policy rates because of concerns that a falling dollar might feed higher inflation. I think that’s a legitimate consideration for policy.

Then a second mechanism would be direct intervention in the foreign exchange market. That’s something that other countries do rather regularly, but the U.S. has not done on a consistent basis for a long time, and the Bush administration hasn’t done at all. And I certainly think that’s a tool that shouldn’t be ruled out, though I think it would take a rather extraordinary series of events in order for it to be used.

How do you do that? How do you intervene in the foreign exchange market?

Well the United States has some euros and yen that it holds. The Treasury has some euros and yen that it holds. And it could sell euros and buy dollars. Typically, the intervention would be done jointly, it would be done with, say, the European Central Bank, which would also buy dollars.

Setser says that direct intervention in the foreign exchange market is something that shouldn’t be ruled out. This is another ridiculous statement from someone who shows absolute ignorance to free market principles. In a free market system the government does not bail out institutions that fail nor do they intervene in markets. This ensures that bad ideas go away. When the government intervenes, bad ideas often remain which does not serve as a benefit. That’s why the term free market is used because it is supposed to be free from government intervention. The government is only meant to serve as a referee. Throughout history, societies that have operated in a relative free market economy with a sound monetary system have prospered. Setser clearly does not understand this.

Setser also reiterates his belief that supporting the value of the USD is not the appropriate role of the Federal Reserve. If that’s not the appropriate role of the Federal Reserve, than what is? The Federal Reserve was originally sold to the American people in the early 1900s as a stabilizing force. So does that mean the people who fought to found the Federal Reserve are liars?

Even more ridiculous is that he says the Federal Reserve should ensure price stability. How in the world can the Federal Reserve ensure price stability if it isn’t important for the Federal Reserve to ensure that value of the USD remains strong? There can be no price stability if the monetary unit that various goods and services are priced in fluctuates because of the policies set by the Federal Reserve. Look at the price of gold, silver and oil. These assets have moved up in price in large part because of the irrational inflationary policies of the Federal Reserve. There is simply more money in the marketplace chasing these goods. This is simple supply and demand economics. A greater supply of money chasing the same goods and services means the price of these goods are going to go up.

Considering the amount of influence that the CFR has in Washington DC, it is alarming that we have economists from this think tank making recommendations when they do not have a basic understanding of the importance of free markets and a sound monetary system. Unfortunately, the Federal Reserve appears to already be implementing many of their suggestions considering that the weaker USD has lead to further economic instability. The possibility, that the Federal Reserve will devalue the USD to the point where it will be replaced by a regional currency is much greater after analyzing these statements from these two CFR economists. This is yet another bullish sign for gold, silver and other tangible assets in the long term.