November 16, 1999 ~ Rudiger Dornbusch, M.I.T. professor of economics and advisor to the World Bank and the I.M.F. has been giving us a sermon with a lot of truths on how to run a country: “Time and again, governments try to deliver an artificial prosperity with overvalued currency, using the money printing press and debt; sooner or later they fail.”
Rudi should be worrying about his own country and giving this advice to his government. Let’s take a look a some facts about disorder in the U.S.A., which has reached staggering proportions.
1. Last year, 1998, the U.S. had an export deficit of $235 billion dollars. This year, the deficit will pass $300 billion dollars. Rudi, why are you preaching to us about overvalued currencies, when your country has the highest export deficits the world has ever seen, as a consequence of an overvalued dollar?
2. The monetary base of the Federal Reserve registers an increase, at a yearly pace, of 15.9% in the last three months, an a yearly rate of increase over 20% (20%!) in the last two months. Since last August, money in circulation has increased at a yearly rate of 10.2%. Last year, M3, the broadest measure of money supply, increased $645 billion, which is double the total increase in the first five years of this decade. Wouldn’t it be adviseable, Rudi, to go back to the U.S. and stop your money printing machine?
3. During the eighteen months that ended last June (the latest date for which we have information) domestic non-financial debt increased $1.553 trillion dollars, more than 10%. At the same time, the financial sector increased its debt even more: additional debt of the financial sector increased by almost 30%, by $1.626 trillion dollars. Household mortgages increased by $563 billion dollars, and corporate debt grew by $642 billion dollars. Money market funds increased by $357 billion dollars, 30%. What are you doing here in Mexico, Rudi, when your own house is on fire with additional debt creation?
4. Since October of last year, 1998, the Down Jones Industrial Index has risen 40%, the NASDAQ index has risen 160%, the Morgan Stanley High Tech index has risen 200%, the NASDAQ Telecommunications index has risen 170%, the Philadelphia Semiconductors index has risen 240%, and the Internet The Street.com index has risen by …480%! Why are you warning us against artificial prosperity, when your own stock market is clearly in the midst of a huge speculative bubble?
5. You are quite right, Rudi, when you state that all these policies fail, because undoubtedly, they will fail. But you should begin by putting order in your own house, instead of picking on Mexico.
Rudi, you are part of an organized effort to ANNEX MEXICO to the U.S., by pushing Mexico to use the U.S. Dollar as its currency, through a Currency Board as in Argentine. In the first place, you should be aware that Mexico wishes to remain an independent country. Second, you should focus your attention on your own country, for all those bad policies which you warn us against, and rightly so, are rampant in the U.S., and your currency is far from reliable, as we shall soon find out. Finally, you should be aware that Mexico has no interest in “surrendering”, as you so insolently have suggested, but does have an interest in turning to a sound currency, such as silver, and thus preparing itself for the catastrophe which is staring the U.S.A. in the face.
Written by Hugo Salinas Price for In This Age of Plenty ~ November 16, 1999