Debased dollar blamed for house price bubble

John Tamny, the editor of, offered a radical reinterpretation of the financial and economic crisis at the Investment Summit.

He argued that the debasement of the dollar, rather than loose monetary policy, was to blame for the American house price bubble earlier this decade.

Tamny lambasted the American authorities for their “horrific and irresponsible oversight of the dollar”. For him, this was central to the malaise because “the dollar is the most important price in the world economy”.

Individuals rushed into buying houses, Tamny argued, because of fears about the value of the dollar. “When currencies weaken, people want to buy hard assets,” he said.
Several factors were blamed for the debasement of the dollar under the presidency of George W Bush. Three successive treasury secretaries talked down the value of the currency. In addition, Bush’s selective use of tariffs undermined faith in the dollar.

His explanation contrasts with the mainstream view that blames lax American monetary policy for the housing bubble. Critics of Alan Greenspan, then chairman of the Federal Reserve, argue that interest rates became too low on his watch. But Tamny countered that the historical record shows no correlation between low interest rates and strong property price performance.

Tamny described how the housing bubble eventually led financial institutions into difficulties. But the problems were compounded by the unwillingness of the authorities to allow troubled institutions to fail. “When you save banks, you create cancerous cells that destroy the whole system altogether,” he said.

Tamny concluded that the dollar should be dropped as the global reserve currency and replaced by a British-eurozone or Chinese-Japanese currency.