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Give Us Gold Or Give Us Depression

June 3rd, 2014 - 1:40 pm

That’s the message from Steve Forbes in his new book:

“The best way to achieve monetary stability: linking the dollar to gold,” he wrote in the book out today. “The Fed should have only two tasks: keeping the dollar fixed to gold and dealing quickly and decisively with panics,” he wrote, according to excerpts provided in advance to Secrets.

Forbes has long been a leading conservative voice on the economy, and his latest book is likely to revive calls for a gold standard.

“The refusal of many in the policy establishment to entertain the idea of a return to a gold standard is based on astounding ignorance about just what a gold standard would mean and how it would work,” he wrote in the new book.

The book is extremely critical of the Fed, especially former Chairman Ben Bernanke and current Chairwoman Janet Yellen. “The Federal Reserve must stop trying to run the banking system and the economy.”

We don’t need a gold standard per se, but we do need a currency based on something the government can’t muck up. The problem is that Washington would rather be tasked with picking up the pieces of another depression — and not coincidentally, further and greatly enhancing its own scope and powers — than it would be tasked with implementing real solutions.

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All Comments   (6)
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If we went back on a true gold standard, we'd have money supply inflation faster than you can say "fraudulent bitcoin mining". On the other hand, the byproducts of seawater mineral reclamation could be pretty darned useful.
20 weeks ago
20 weeks ago Link To Comment
The US was on the gold standard until the creation of the Fed, whose function is to muck with American credit markets. The banks wanted the creation of a lender "of last resort" to bail them out, when their credit manipulations resulted in a credit bust.
20 weeks ago
20 weeks ago Link To Comment
The banks wanted something that would control the money supply better than random inflation caused by gold strikes and constant deflation from wealth creation. Say what you will about the Fed, but the economic history of the 20th century is far better than that of the 19th.

Gold standards - really any "hard" money system - has some pretty severe problems. In addition to the aforementioned lack of control over the money supply it makes a central tenet of socialism - the idea of the fixed size economy - true, see the root causes behind the Opium Wars. Plus the fact that there simply isn't enough gold on the planet to run the economy. At least not without raising the price of gold ~6 times (hmm, I wonder what kind of exposure to gold these hard money advocates have in their portfolios).

The major problem with the Fed is their mandate to maintain maximum employment. That's the root cause of the ZIRP madness of the past 15 years. If they simply focused on the job they could theoretically actually DO - maintaining the money supply balanced with the economy - we'd all be better off.
20 weeks ago
20 weeks ago Link To Comment

The "fact that there simply isn't enough gold on the planet to run the economy" is a canard. It would be entirely possible to use a 17 milligram token to pay for a can of Coca-Cola. Or to pay 17 milligrams using a debit card.

Other than that, I pretty much agree. Especially the part about the economic history of the 19th century. People look at the phenomenal growth of that period and think the gold standard must have been responsible, but there were decades of low growth due entirely to monetary crises. It was respect for property rights and contracts that allowed rapid growth, not the gold standard in and of itself. It's true that we often use fiat money to impose a hidden wealth tax, but that's because of a prevailing philosophical bias against wealth, not because of fiat money.

20 weeks ago
20 weeks ago Link To Comment
Sorry, I should have said that *at current values* there wasn't enough gold to run the economy (~$6.5 trillion compared to ~$70-85 trillion). You could run the economy on gold, if you raised its price by a factor of 20 or so. Hence my parenthetical about hard money advocates being heavily invested in gold.
20 weeks ago
20 weeks ago Link To Comment
Just exactly how do you define the dollar on something the gov't can't muck up? It's inherently impossible. Even under the gold standard currency values relative to gold were routinely adjusted pre-Bretton Woods.

I suspect that what Forbes wants is the return of that Bretton Woods system. Problem is, it was a child of its time and cannot be recreated absent yet another destructive European ground war that forces all of Europe's economies to be dependent on the US for trade opportunities.

Bretton Woods wouldn't voom if you put 4,000 volts through it. It is demised, deceased, and part of the choir eternal. It is an ex-system.
20 weeks ago
20 weeks ago Link To Comment
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