19 March 2008
The Food/Energy Standard
Dollar volatility since the end of the Gold Standard has more to do with globalization of our economy than with a mistaken monetary policy. In his OpEd article in the March 18, 2008 Wall Street Journal, Neuven Brenner highlights the Euro to illustrate the absence of a governmental issuer of any international medium of exchange in today’s increasingly borderless world.
In order to isolate the aspects of the dollar’s value over which it attempts to exert some direct control, the Federal Reserve relies on the distinction between “core” and volatile elements of the Consumer Price Index. However, the rampant federal deficits and Pollyannaish real estate speculation of the last seven years have made the dollar a wholly unreliable measure of relative value for the most essential commodities traded between citizens of interdependent states. The information technology revolution has allowed the world’s economic interactions to outpace its political integration.
Without an authority to impose a monetary standard to equilibrate commercial and asset-exchange transactions and with no consensus on an artificial marker such as gold, the global standard of exchange by default has become those commodities upon which modern life most depends—food and energy. Their volatility in dollar terms is a function of the instability of America’s monetary system rather than “temporary price shocks” that derive primarily from idiosyncratic sources.
Dollar volatility since the end of the Gold Standard has more to do with globalization of our economy than with a mistaken monetary policy. In his OpEd article in the March 18, 2008 Wall Street Journal, Neuven Brenner highlights the Euro to illustrate the absence of a governmental issuer of any international medium of exchange in today’s increasingly borderless world.
In order to isolate the aspects of the dollar’s value over which it attempts to exert some direct control, the Federal Reserve relies on the distinction between “core” and volatile elements of the Consumer Price Index. However, the rampant federal deficits and Pollyannaish real estate speculation of the last seven years have made the dollar a wholly unreliable measure of relative value for the most essential commodities traded between citizens of interdependent states. The information technology revolution has allowed the world’s economic interactions to outpace its political integration.
Without an authority to impose a monetary standard to equilibrate commercial and asset-exchange transactions and with no consensus on an artificial marker such as gold, the global standard of exchange by default has become those commodities upon which modern life most depends—food and energy. Their volatility in dollar terms is a function of the instability of America’s monetary system rather than “temporary price shocks” that derive primarily from idiosyncratic sources.
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