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You seem to want to divert attention from the subject of the debate, and focus on the S&L crisis. I will first dispose of that ancillary issue, then move on to the main subject.
Your point about the pre-deregulation assets of S&Ls may or may not be correct. I won't contest it because it's irrelevant. Up to the point in time that the deregulation bill passed into law, there is no doubt that S&Ls had been hurt by the rampant inflation of the late '70s and early '80s. However, they remained solvent. There weren't huge numbers of S&Ls failing. If inflation destroyed the S&Ls, as you hypothesize, then they would have all failed in or shortly after the period of highest inflation. They did not. They still remained solvent. The moment they were deregulated, these S&Ls began buying huge amounts of bad loans and investing in risky speculative land deals. How could make these investments if inflation had destroyed all their assets? They could not have. This disproves your entire hypothesis, as clearly all that inflation did not wipe them out, any more than previous recessions and inflationary periods had wiped them out.
The failures began well after the peak period of inflation, after deregulation, after S&Ls bought up huge amount of land, after the S&Ls had engaged in rampant speculation. The failure began when land values crashed. Then, and only then did we have S&Ls dropping like flies. The real cause of the failures was that enforcement provisions in the deregulation legislation were stripped out by corrupt politicians. Even then, with their extremely limited power, the fedgov S&L regulators tried to take action against the dangerous investment practices of many large S&Ls. The federal regulators were stopped cold in their tracks by strong pressure from influence-peddling congressvermin, the most notable being the Keating Five. All planned punative regulatory actions against S&Ls were cancelled. The rampant and stupid speculative investment, especially in land deals, enabled by political corruption, went on until the bottom fell out of land prices. Then the massacre started. Thus, that is the main cause of the S&L failures. I fully recognize that inflation was a contributing factor, but the timeline of events clearly shows it was not the main, much less the sole cause, as you are claiming. Strong inflation never destroyed the S&Ls before deregulation, and it wouldn't have afterwards if oversight remained intact and vigorous. The regulators saw the looming disaster, they tried to act, but they were hog-tied by bought-and-paid-for Democrats. You are simply wrong on this point, and facts undeniably prove that.
As for the pre-deregulation S&L industry, you say that the fact that it was so damaged by inflation proves that a fiat currency is bad. You haved that completely ass-backwards. It proves the government regulation that defined the operation and limits of the S&Ls was not updated to reflect a floating currency economy. The dead hand of government bureacracy and the morass of fedgov regulations it spawns failing to respond to new economies in the banking sector is not an argument for changing our currency standard. You don't change the basis of our currency simply to respond to a gross failure in government policy. That whole idea is anti-capitalist. The correct answer is to fix the bad governmnet policy, in this case to root out the corruption and remove the socialist strictures placed on banking, allowing the banking industry to respond at will to the demands of a free market.
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Now, on the main debate. Here are the main point of contention thus far:
- Tying the value of the currency to the price of a commodity creates the conditions for a deflationary economic 'death spiral'. This is evidenced by the fact there have been no depressions since the currency was floated.
- The floating currency has been stronger since it was floated. Strength of the currency is measured by the confidence that people have in it.
- Even if we wanted to return to a gold standard, no one has proposed a feasible way to do it without crashing the existing currency and the economy in the process.
- The previous 'gold standard' currency was as much a fiat currency as the one we have now. They printed as many paper notes as they wished, without having the bullion reserves to back it up. The only true difference between the pre-1932 and post-1932 currency systems is that the value of the former was tied to the price of gold, and the latter was not.
- You and others here are hawking a bogus economic theory that all major money supply inflation will lead to economic disaster, and all economic disasters are caused by money supply inflation. Your repeated attempts to wrongly lay the S&L disaster solely at the feet of money supply inflation is a prime example of this. The S&L discussion above shows that is false. The chart and article I posted about the '90 period also puts the lie to that. You are also ignoring the fact that we've had the exact same money supply inflation before and after 1932, yet depression and panics have disappered since we floated the currency. This theory just doesn't fly.
- You claim that scarcity integrity is vital to a solid currency, yet you have made no meaningful case to support this contention. You seem to expect me to take this as a given; I do not.
You attribute S&L insolvencies to deregulation, but common sense alone should demonstrate to you that deregulation only made a hopeless situation more costly. Why don’t you understand the explanation: financing 6% fixed rate mortgages with 14% deposits leads---without question--- to insolvency. Period. The two arguments you put forth are flawed.
Your Argument #1: No insolvencies occurred until after deregulation, therefore deregulation caused them.
Actually, no insolvencies “were declared” but many had occurred. You fail to recognize that insolvent institutions can and do continue to operate as long as no one calls attention to the fact. Your argument is equivalent to saying birth is not cause by egg fertilization but by labor pains because babies are not born immediately after fertilization but do immediately follow labor pains.
Your Argument #2: No insolvencies occurred during prior bouts of inflaltion.
There were no such bouts of inflation since the inception of the S&L industry in the 1930s. Also, the critical combination in the 70s went beyond inflation. It was inflation + fixed rate mortgages + competition from money market funds. Tomorrow, if we were to relive the 1970s inflation, the insolvencies would not occur because they now use adjustable rate mortgages and/or trade off interest rate risks using derivatives.
“deflationary economic death spiral” is hyperbolic, imprecise, inaccurate mumbo-jumbo not to mention inconsistent with your prior observation that our currency has NEVER been tied to a commodity.
The floating currency has been stronger since it was floated.
relative to what? The Mexican peso?
Strength of the currency is measured by the confidence that people have in it.
And how is that measured?
Even if we wanted to return to a gold standard, no one has proposed a feasible way to do it without crashing the existing currency and the economy in the process.
Unsupported hyperbole.
You and others here are hawking a bogus economic theory that all major money supply inflation will lead to economic disaster, and all economic disasters are caused by money supply inflation.
This is not an accurate statement of my pov.
We've had the exact same money supply inflation before and after 1932
This is not even close to accurate.
depression and panics have disappered since we floated the currency.
We’ve replaced them with inflation, bailouts, and phony accounting.
You claim that scarcity integrity is vital to a solid currency, yet you have made no meaningful case to support this contention. You seem to expect me to take this as a given; I do not.
I don’t know what you mean by “solid.” I’d express it as “scarcity integrity is vital to an honest, reliable, free enterprise monetary standard.” Giving central planners and/or specially privileged banks the right to expand the money supply by whim is guaranteed to end in disaster.