The Vatican’s Monetary Wisdom

Abstract

On Monday, the Vatican released an 18-page document titled «Toward Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority.» Since then, it has been celebrated by advocates of bigger government the world over.

What’s ignored is that the document —released to stimulate debate, not offer official doctrine— embraces a sound economic theory concerning the cause of the world financial crisis: the breakdown of the postwar Bretton Woods monetary system and the unleashing of fiat currencies and central-bank printing presses.

Let’s look at a representative passage, while keeping in mind several important markers: 1971 was the year that the Nixon administration killed the gold standard, and along with it Bretton Woods and hard currencies; in the early 1980s, financial deregulation in many countries removed the last major  barriers to virtually unlimited amounts of credit; and the 1990s was the decade when the drive to suppress interest rates became the common policy of central banks around the world. Since the 1990s, we have seen that money and credit instruments worldwide have grown more rapidly than revenue, even adjusting for current prices. From this came the formation of pockets of excessive liquidity and speculative bubbles which later turned into a series of solvency and confidence crises that have spread and followed one another over the years.