The Birth And Rise Of Washington’s Infernal Inflation Machine, Part 3

Keynesian economists in the US have done their best to obfuscate the Fed’s culpability for the burned out industrial zone dotting Flyover American from coast to coast. Along with their nonchalance about China’s mountainous internal debt (about $50 trillion counting financial debt), a much used canard is the claim that China’s ultra-dirty float mainly reflected the build up of FX reserves to protect it from a “currency crisis”.

But that’s self-serving humbug. In a floating exchange rate world of fiat currencies there can’t be any currency “crisis” and there is no need for currency “reserves”. According to professor Friedman, the price mechanism would clear the FX markets just like it does the markets for apples and oil. Instead of periodic FX crises and the need to defend a fixed FX peg, there would be just a fluctuating FX price, conceivably even one that fluctuated drastically.



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