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Thursday, October 20, 2011

What Chinese Unemployment?

"There is gold in them thar hills!"

Occasionally we read in various columns of mainstream journalists that the Chinese have shot themselves in the foot when they (in violence of Friedmanite precepts) failed to revalue their currency upwards. The world will retaliate by imposing punitive tariffs, creating horrible unemployment in China and causing civil unrest.
These journalists should be careful in making wishes, because they may just get what they've wished for. One of these days China may open its mint to gold and silver, setting the example to Asia and the Muslim world and, possibly, to South America. Other countries may follow suit. That will be the ultimate revaluation that restores trade relations to normalcy, at least in that part of the world that returns to the gold standard.

There was a time when unemployment "insurance" and other forms of dole were unknown in the United States. That was during the time when the country was on the gold standard and deflation meant an increase in the value (purchasing power) of gold. Whenever this happened, the battle cry inevitably was: "There is gold in them thar hills," and people who had lost their jobs typically went out prospecting and panning for gold. Panning for gold always gave them an income and a chance to save some capital. The country did very well, thank you very much, with this "natural unemployment insurance." The bottom line was: More gold for the economy. More gold cured the disease – deflation – and soon things were back to normal. Unemployment did not have a chance to become "structural."

Of course, given the present anti-gold mindset – as seen in the thinking of the Fed and the government – today large-scale prospecting for gold is prevented in the name of "protecting the environment." Keynesian economists say that they have the perfect substitute for more gold coming to the economy; namely, printed paper money, which also has the advantage that you can fine-tune its creation from a central control panel, the central bank. What they forget is that their "ersatz" gold is highly counter-productive. Rather than easing the debt problem plaguing the economy, they make it worse thereby perpetuating, even aggravating, the unemployment situation.


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