This Federal Reserve memo discovered in William McChesney Martin's papers is another important piece of evidence that monetary policy in the United States has run amok. It is one of the formative documents that have put U.S. monetary policy in general and dollar policy in particular on the wrong path. It clearly describes the intent of the Federal Reserve to pursue a dollar policy that was not only hidden from public view but also contrary to the law at the time, which defined the dollar as a weight of gold and required the maintenance of this standard of value. It was also contrary to the international obligations of the United States under the Bretton Woods Agreement that required the dollar'’s link to gold.
Rather than acknowledging that the dollar by 1961 had become debased, which would lead to a tightening of monetary conditions by raising interest rates (the traditional central bank response to maintain the gold standard) or a devaluation of the dollar to reflect its debased state (the approach taken by Franklin Roosevelt), the aim in 1961 was to pursue a different path. I purposely don't say it was a "new" path, because it wasn't. It had been tried before countless times by many governments and their central banks, and it has never worked. It is a path to the fiat currency graveyard, and the dollar was put on it by bureaucrats in the Federal Reserve serving their masters, the banks.
Today's problems with the dollar and countless insolvent banks thus began decades ago. Bankers got what they wanted, a license for the unbridled extension of credit. As a result, we see clearly today what they have wrought. They have nearly collapsed their banks and the dollar as a consequence. So the emergence of this "Confidential" memo from the Federal Reserve is timely, and hopefully today's policy makers can learn from it.
The confidential memorandum from the Martin archive can be found scanned here:
The transcription is here: