122 THE BiG DROP
eted, inflation flew out of control between 1977 and 1981 (US
inflation in that five-year period was 50%) and the value of the
dollar was cut in half.
Again, the lesson of currency wars is that they don’t produce
the results you expect which are increased exports and jobs and
some growth. What they produce is extreme deflation, extreme
inflation, recession, depression or economic catastrophe.
This brings us to Currency War Three, which began in
2010.
Notice I jumped over that whole period from 1985 to 2010,
that 35-year period? What was going on then?
That was the age of what we call “King dollar” or the
“strong dollar” policy. It was a period of very good growth,
very good price stability and good economic performance
around the world.
It was not a gold standard system nor was it rules-based.
The Fed did look at the price of gold as a thermometer to see
how they were doing.
Basically, what the United States said to the world is,
“We’re not on a gold standard, we’re on a dollar standard. We,
the United States, agree to maintain the purchasing power of
the dollar and, you, our trading partners, can link to the dollar
or plan your economies around some peg to the dollar. That
will give us a stable system.”
That actually worked up until 2010 when the US tore up
the deal and basically declared Currency War Three. President
Obama did this in his State of the Union address in January 2010.
Here we are going in 2015 and they’re still continuing.
That comes as no surprise to me. A lot of journalists will see,
say, the weak yen, and they’ll say, “Oh, my goodness. We’re in
a currency war.”
And I’ll say, “Well, of course we are. We’ve been in one
for five years. And we’ll probably be in one for five more
years, even longer.”