QUESTION: You commented that the central banks had a difficult position when they were on the gold standard compared to post-1971. Could you explain that difference?

Thank you for the education. Its better than any classroom.

EJ

ANSWER: The United States created the Federal Reserve in 1913. Prior to World War I, central banks were long-established in Europe like the Bank of England in 1694. What you have to understand is that BEFORE World War I, the central banks of Europe were faced with two duties because there was the gold standard.

1.) The first was to defend their currency’s parity with gold and thereby the entire edifice of the international gold standard. This required raising interest rates and keeping the total volume of money and credit under control, often with contractionary effects.

2.) The second responsibility was to act as a lender of last resort for their banking system by supplying emergency liquidity. This necessitated an expansion of credit and a lowering of interest rates.

Post-1971, the central banks were no longer required to intervene to maintain the exchange rate relative to the gold standard, which is more or less similar to Hong Kong managing the peg to the dollar today.

Paul Volcker raised interest rates insanely into 1981 to stop inflation, but he ignored the consequences that would have on the value of the dollar on world markets. This was the stone that hit the standing pool of water which then at the 1985 Plaza Accord suggested that Europe create a single currency. One mistake is never corrected and never acknowledged. They constantly create a new scheme to solve the last one they created.

COMMENT: You and Maggie could have solved BREXIT in a week!

HS

REPLY: She would have done precisely that. Of course, they staged a coup against her to take the UK into the euro. She was not against the EU as long as it remained a trade union. We had discussions on that subject. Maggie said at the Bruges Speech:

“We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels.”

While some people are claiming she would NEVER have had a referendum, that is total nonsense. Her Poll Tax was to make people have a stake in government and then they would vote and pay attention. That was her true motive behind that step which nobody understood and it backfired on her.

She was against the euro and the federalization of Europe; she would MOST DEFINITELY move to exit the EU under these terms. She would NEVER have agreed to surrender the sovereignty of Britain.

The idea of the euro was born at the Plaza Accord in 1985. The purpose was to create a single currency to compete against the dollar. It was James Baker’s idea that if there was a single European currency, then the dollar would not be the main currency and it would not rise excessively. Nigel Lawson was a big supporter of joining the euro at that time. The entire Plaza Accord and then the Louvre Accord were all about managing the dollar value in FOREX markets.

Using her Bruges Speech and trying to twist things around that she would have been against a referendum and would be in the remain camp is TOTAL nonsense. We had deep discussions about the problems with the euro. The commission designing the euro came to our WEC in London. I met with them about the structural design of the euro. I think I knew where this went all wrong and I knew where Maggie stood. She also respected that I was one of the leading currency specialists on the subject with real experience and not just theories.