Monetary Conference in New York, Part I – Leonard P. Liggio
The semi-annual conference of the Committee for Monetary Research and Education (CMRE) met at the Union League Club of New York, October 16, 2008. The topic: Is this the Epicenter of the Biggest Financial Crisis in History? The audience was mainly persons from Wall Street. The CMRE chairman is Amb. J. William Middendorf II, who was a banker and then Secretary of the Navy and US ambassador to EU where he organized a CMRE meeting in Brussels with Lord William Rees-Mogg and James Grant. Nobel Prize Economist Robert Mundell gave a presentation which included insights about China´s role in international finance and investment in US securities. A senior analysis was given by William Tehan who often spoke at earlier CMRE conferences with the late John Exter, MPS member and former chairman of the Reserve Bank of Ceylon.
A central theme of the CMRE conference was: the Federal Reserve policy created credit instead of capital formation. The Federal Reserve policy of flooding the market with soft money and low interest rates created negative US savings and vast expansion of debt.The solution to the current crisis is a policy to create capital formation through sound money. Talks recalled the historical background to the current financial situation. For a century until World War I, Western European currencies were on a sound foundation. The protracted World War I caused the Bolshevik Revolution in Russia and subsequently the rise of Fascism and Nazism. Following a meeting in Boulogne of French prime minister Raymond Poincare and British prime minister Lloyd George (February 25, 1922), the major powers met in Genoa in April-May, 1922 to seek to restore sound finances. Secretly the Soviet and Weimar German ministers met at Rapallo and established heavy German credits to Soviet trade. (This was a return to Otto von Bismarck´s Dreikaiserbund and later in 1950s the Soviets returned the German prisoners of war to gain access to the German Economic Miracle.)
Winston Churchill in 1925 against the advice of J. M. Keynes set the price of the pound sterling at the pre-World War I price. This was artificially high and the US Federal Reserve kept the US interest rate low to support the pound, thus, creating the credit bubble that led to the 1929 crisis. In June, 1933 FDR repudiated the obligation to redeem contracts in gold. In the process of challenging the repudiation, Robert Alphonso Taft entered the national political stage by leading the judicial process regarding the gold clauses in contracts during 1935 and 1936. In December, 1936 the court of claims rejected the suits. Taft appealed to the US Supreme Court and appeared for the first time before the court over which his late father, former president William Howard Taft had presided as chief justice of the United States. Justice James McReynolds agreed with Taft, asking if the Eighth Commandment, Thou Shalt Not Steal still existed. But the majority opinion sided with the government in December, 1937. Taft went on to be elected Ohio´s US senator in 1938 when the Republicans re-surged in Congress due to public rejection of FDR´s plan to pack the Supreme Court.
Subsequent credit expansions were examined, such as President Nixon´s replacement of the cautious William McChesney Martin as Federal Reserve Chairman with Arthur Burns. President Nixon took the US off what remained of a gold basis in August, 1971.
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