Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed’s Bernanke Disparages the Pseudo-Gold-Standard

Commodities / Gold and Silver 2012 Mar 30, 2012 - 01:54 AM GMT

By: Dr_Jeff_Lewis

Commodities

Best Financial Markets Analysis ArticleJust about all of the world’s national currencies in circulation today consist of paper or fiat currencies that have been assigned value by official decree or fiat, rather than due to any real intrinsic value they may possess, other than perhaps the ability to generate a significant amount of heat when burned.  Furthermore, these currencies represent the debt of a country, rather than any real store of value.


Many people have become concerned about the ability of such debt based paper currencies to retain their value over time in comparison to hard currencies with well-established intrinsic value like silver and gold. 

Regular inflation or price increases have persisted over many years in most developed countries due to this gradual loss of confidence, with the result being a general reduction in the spending power that such paper currencies command.

Bretton Woods System Used Gold to Establish Value for the U.S. Dollar

Most people have become accustomed to this gradual erosion in the purchasing power of the U.S. dollar and other debt based paper currencies. Nevertheless, this unfortunate situation that eats away at personal savings was not always the case, since the U.S. Dollar had at one time been on the Gold Standard until it was unilaterally removed by then-President Richard Nixon in the early 1970’s.

Under the Bretton Woods system of fixed or pegged exchange rates, which persisted from 1944 until that Nixon Shock occurred, the value of the world’s major currencies was fixed to the value of the U.S. Dollar, which in turn had its value fixed to the value of gold.

The fixed price of gold established by that system was $35 per troy ounce — a far cry from today’s price in excess of $1,600 per troy ounce.

Recent Gold Standard Critics Include Ben Bernanke

Despite the many advantages of the Gold Standard in terms of keeping the purchasing power of a paper currency stable over time, some people in high places still apparently disagree with the wisdom of maintaining such a currency system.

One such notable — and perhaps self-interested — individual is Federal Reserve Bank Chairman Ben Bernanke. In a recent educational lecture he gave at George Washington University, Bernanke first acknowledged that the Gold Standard could be considered an alternative to a central bank like the privately owned Federal Reserve.

Bernanke’s Issues With a Pseudo-Gold Standard

Nevertheless, Bernanke characterizes a ‘Pseudo-Gold Standard’. He is referring one type of Gold Standard that was not credible because it had a fixed exchange rate and was further accompanied by fractional reserve banking. By forcing a country implementing it to maintain a fixed exchange rate, this limits their monetary policy options and their ability to adjust the country’s money supply to changing economic conditions. Apparently, pseudo-Gold Standards are much the same the current ‘dollar’ standard we experience today.

He also pointed out that any lack of credibility on the part of a country using the Pseudo-Gold Standard could be met with speculative attacks on its currency, and that a lack of supply of gold could reduce the country’s money supply and prompt deflation. The only reason why the base-less monetary has not yet collapsed is that central banks can manufacture more, until the ultimate day of reckoning –meanwhile further destabilizing the system.

Bernanke also took up the Great Depression and mentioned in his lecture that the result of that troubling economic period was the removal of the U.S. Dollar from the Gold Standard by President Roosevelt in 1933 so that the Fed could legally expand the U.S. money supply, although the provision of nationwide deposit insurance for U.S. bank deposits probably had more of a favorable impact on depositor confidence.

Furthermore, Bernanke noted that the ‘Pseudo-Gold-Standard’ certainly did not prevent the Great Depression, and admitted that the central bank probably actually exacerbated that financial crisis by keeping monetary policy far too tight during that period and “providing only minimal credit to banks”, which resulted in rampant bank failures that closed almost 10,000 banks, according to Bernanke.

Again, the real problem then (and today) is not the money itself, it is the fractional reserve lending that allows credit to build to the point where the value of money (not money and credit) is entirely disconnected with the value of all things money should value.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2012 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in