An Old NYT Op-Ed
Jude Wanniski
July 8, 2004


From:Jude Wanniski
To: James K. Galbraith <galbraith@* * * * *.edu>
An Old NYT Op-ed4:07 pm 7/8/04

The 1981 piece practically got me read out of the Reagan administration. I was saved by JBIII and the anti-monetarists, including Volcker. In the spring of 1982 I bet my whole company by arguing that only if the Fed flooded the economy with liquidity would the deflation end. The monetarists said easier money would re-ignite inflation and cause a collapse of the bond market. I went head to head against Beryl Sprinkel at the Lehrman Institute with Irving Kristol taking it all in. When Volcker was forced to flood the economy with liquidity in August 82 to prevent bankruptcies of the BIG BANKS, because Mexico could not pay interest on its colossol debts, I made $35K almost overnight with my leveraged bet on bonds. Greider writes about it in Secrets of the Temple. Kristol wrote that Wanniski won, monetarism lost. That was the end of the M's as targets. I made the bet, not Laffer, not Mundell, because I was sure of myself and they were not. And yet the financial press continued to treat me as the flack for the supply-siders.

Gold is key to my framework. Up another $5 today. Terrorist Warnings by the Bushies cause a decrease in the demand for liquidity. It becomes difficult for me to argue gold is showing no inflation. Easier to argue that interest rate hikes will not bring down the gold price... only discourage commerce, cause a demand for liquidity, and cause the gold price to rise further.

The way I think about gold is unique. Nobody I know has ever considered that labor alone determines the marginal price of gold. Give a man with a pick and shovel 2000 years ago and he will produce an ounce of gold over X amount of time. Give a man of similar strength a pick and shovel today and he will produce an ounce of gold in X amount of time.  Other gold fans, including Greenspan, Lew Lehrman, Wayne Angell, add capital to their inflation equation, which is what leads them astray. Once you understand my concept and agree with it, it leads logically to the rest of the system.


At 03:11 PM 7/8/2004, you wrote:

In theory I'm actually trying to write a book on this.  In practice, not getting very far. I am raising the issue parenthetically in short pieces, but you're unquestionably right, I need to nail it down.  Best previous effort was a year or so ago, on the IMF and Brazil, but it didn't get read outside the development circles.

My god that 1981 piece is good.