Thank You, Tony Blankley
Jude Wanniski
December 17, 2001


Memo To: Tony Blankley, McLaughlin Group
From: Jude Wanniski
Re: Man on the Margin

You well remember, Tony, that early in the year I made two trips to Washington to warn members of the incoming Bush administration and the Congress that the economy would not respond to interest-rate cuts or tax cuts. I told them there was little they could do, that the government would never be able to apply the correct medicine until it saw that the usual prescriptions were not working. I met with you and other journalists on those visits, following the biblical dictum to broadcast your seeds because some will fall on stones, some will be choked by thistles, and others will find good soil and take root. I’ve been watching the field ever since and can now thank you for being the first of all those I warned to publicly announce on national television – Sunday’s McLaughlin Group on NBC – that “Jude Wanniski’s predictions have been coming true” and we may well be in a monetary deflation. You were responding to others on the show who said they were expecting prosperity just around the corner because of the lagged effects of interest-rate cuts and fiscal measures.

It was totally unexpected, Tony, and I thank you for the mention. Of the dozens of journalists I had warned, on all the major newspapers and broadcast media, I honestly never thought you would be the man on the margin, the first to break the ice. Your main interests have been in the political realm, not in finance or economics, and the only reason I did invite you to breakfast last March was that you are one of the few journalists who never seem to turn away from ideas not already in your belief system. Even the best financial journalists at The New York Times and Wall Street Journal have dismissed the idea of a monetary deflation because it is outside their Keynesian or Monetarist paradigms. I’ve known you mostly from your earlier incarnation as Newt Gingrich’s press secretary, but my respect for you as an analyst and communicator did not begin until you went on your own, post-Newt. The country owes you thanks for calling attention to my accurate forecasts because it may embolden others who I warned to turn to a fresh examination of the problem afflicting our economy and eventually the correct prescription.

The economic weakness that began appearing two years ago was the result of a monetary deflation that began with small errors the Federal Reserve began making five years ago. A true monetary deflation is hard to see because it grinds away slowly. It is a process, not a price index. You may recall me telling you the errors first hit commodity producers and then hammer at producers of goods and services. I note The Wall Street Journal this morning continues to cling to the hope that an economic rebound will show up soon after the first of the year, with or without a stimulus package. I’m afraid we are not that close to recovery, which will require a change in the Federal Reserve’s operating mechanism and devaluation of the dollar relative to commodities, with gold as the proxy for all commodities. The fact that I alerted Treasury Secretary Paul O’Neill and Vice President Dick Cheney to what they might expect as the year unfolded may encourage one or both to take the lead in considering policy change, especially since Tony Blankley has stuck his neck out and added his voice to that of Polyconomics, Inc.

I have to say that my close friend Bob Novak has mentioned my deflationary prognosis in a number of columns and that George Gilder gave me all the space I needed to tell the story in his American Spectator, “The Deflation Monster,” which is still available at But you’re the first to publicly identify the accuracy of our forecasts. Now remember this, the worst is not over.