The Greatest Economic Gift We Can Give Each Other In 2015

Merry Christmas and Happy Holidays to all. During this time of joyous celebration, of gift giving and receiving, I ask, "What is the one gift that best represents a prosperous New Year?"

Thinking back to the original Christmas gifts, I couldn't help but notice a powerful economics lesson contained in the story of the Three Wise Men. They traveled great distances from Asia, North Africa and Western Europe to get to Bethlehem. Lacking sophisticated navigation systems, they followed the Bethlehem Star, a reference point fixed in the heavens. If not for this heavenly gift, the Three Wise Men would not have found Jesus.

All other measurements of time and distance have evolved from, and are made possible by, this fixed reference. The more complex a society, the more it depends on fixed standards of measure. In our highly advanced society, consider what life would be like if we had to check the news channel to see if an hour closed at 60 minutes or if a foot was still 12 inches. Life would be chaos. An equally important unit of measure, the dollar, is not fixed to any standard of value. As a result, we have economic chaos.

Markets do not determine the value of the dollar, politicians do. Markets simply react to their policies, so blaming markets or speculators for a volatile dollar is hypocrisy of the highest order. It is the equivalent of throwing sand in the gears then blaming the engine. What do you expect from politicians?

This brings me back to the Three Wise Men. Is it a coincidence that one of them brought gold? Just as the Bethlehem Star is a fixed reference in the galaxy, Gold is a fixed reference point among the galaxy of prices. It has held its purchasing power relative to other goods for more than 400 years (and probably longer if we had the data to prove it.) When a currency has been defined as a specific weight of gold, it too has retained its purchasing power. Some call this "sound money" or "hard money". Alternatively, under the "floating paper dollar standard", which began in 1971, the dollar has lost over 90% of its value. That's right, nine-zero!

The most solemn pledge a government can make to its citizens is to maintain the value of its currency. Doing so enhances the living standards of the people while breaking this bond does the opposite.

The government issues two types of obligations, one is interest bearing (Treasury securities) and the other is non-interest bearing (Federal Reserve Notes, or currency). Recall the ruckus that occurred around the debt ceiling fiasco with the mere mention of the possibility that the U.S. would even consider defaulting on its interest bearing obligations. Compare that to the silent default that occurs routinely when politicians diminish the value of the dollar.

Above all, a stable dollar facilitates business investment, which is the wellspring of all economic growth, jobs and income. This is the worst economic recovery since the Depression precisely because this is the worst recovery in business investment. This should be proof positive that low interest rates are far less important to business investment than a stable dollar and, therefore, an indictment of the Fed's monetary improvisations.

A return to sound money is also the most effective way to force the Fed to abandon its amazingly stupid policy treating wage growth as if it is inflation, something to extinguish. As a result of the wrong-headed thinking that inflation emanates from labor markets not the Fed, we have stagnant real income for the bottom 90% for over 40 years! Memo to the Fed: wage growth is a good thing, a sign that prosperity is about to be enjoyed by every corner of society.

If you ordered a drink and it was watered down, you would speak up. If you ordered the 12 oz. steak and received the 8 oz. instead, you would speak up. With gold convertibility, you can speak up. If the Fed watered down the money supply, citizens could take delivery of the underlying collateral, thereby restoring the money supply to its proper level and preserving the value of all dollars. With a stable dollar, markets will determine interest rates and the money supply.

History is clear. Economic growth is strongest, unemployment is lowest, and income growth for the striving majority is most robust when the dollar is defined as having a fixed value. The only winners under a floating paper dollar standard have been the Progressives who want to systematically transfer power and liberty from the people to the government. Gold is to the big spenders in Washington what garlic and sunlight are to vampires.

My favorite Wise Man is the one who brought gold. Let's be wise and demand a return to sound money. It will be the greatest gift we can give each other. This will represent the largest transfer of power from the government to the people in the history of the republic. It will mean rising income for the 100%. If we stick together we have them outnumbered. If we bring the heat, politicians will see the light. It's your turn to speak up. Wishing all of you a prosperous New Year!