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The Anti-Gold Fool

Commodities / Gold and Silver 2012 Sep 07, 2012 - 06:20 AM GMT

By: Gary_North

Commodities

Best Financial Markets Analysis ArticleDavid Weidner wrote a piece for MarketWatch: "Fool's Gold Standard."

It was standard stuff, i.e., a combination of economic stupidity, attempted cleverness, and the rhetoric of contempt.

It deserves my special treatment, which I reserve for mainstream media journalists who hate the idea of a world not run by the Federal Reserve and who try to be clever. Weidner is not clever.


Let me explain. I quote him verbatim and in context.

He begins with this:

Every few decades the nation has a financial panic, and in doing so questions its mode of currency. Should we be on a gold standard, or not?

I ask: Why does the nation continue to experience these panics? Also, when? I recall no financial panic comparable to 2008 in the past 70 years. There was the S&L crisis of the mid-to-late 1980s. Government regulation of the industry caused this crisis.

Let us review chronology. Jesse Helms in 1980 called for a gold commission to study gold. A Democrat Congress passed it, and Jimmy Carter signed it. It was held in 1982, four years before the S&L crisis began. It was a dead issue by 1986.

Also, no one in Washington suggested a return to gold in 1982, other than Ron Paul. No one suggested it in 2008, other than Ron Paul.

So, the article begins with a false premise: a supposed relationship between financial panics and calls for a gold standard.

There was price inflation, 1971-1980, but no financial crisis. That decade of price inflation was the result of the policies of the Federal Reserve System under Arthur Burns and G. William Miller. Those policies resulted from Nixon's unilateral killing of Bretton Woods on August 15, 1971. He killed the gold exchange standard, itself a Keynesian imitation of the post-World War I gold exchange standard (1922 Genoa Conference), itself a government-manipulated counterfeit of the pre-World War I gold coin standard, which had ended in 1914.

This post-financial crisis era is no exception. The Republicans have just put a plank in their party platform that called for the formation of a gold commission, a move that's generating some buzz on Wall Street.

It is generating no buzz anywhere. The platform is taken seriously by no one, especially Speaker of the House John Boehner. It merely reflects that Ron Paul scared the Republican Establishment this time. He did not in 1982.

What would adopting a gold standard accomplish?

We've just come through the worst recession since the 1930s. It's healthy that we are challenging our monetary System, our fiat currency and the Federal Reserve system.

Who are "we"? No one on Wall Street. No one in the mainstream media. No one in Washington, other than Ron Paul, who is retiring. Weidner knows this. He is trying to tar & feather him, once and for all.

But if anything, these cyclical crashes only underscore what a folly this is. Reinstitute the gold standard? Please.

Is this what people are doing now that Ron Paul is out of politics?

Not enough people.

Look, let's acknowledge what adopting a gold standard would do:

  • It would guard against inflation by linking currency to something in fixed supply.
  • In doing so, it would lessen government's ability, through the Fed, to manage wealth. That's because inflation effectively shifts wealth from citizens, who can't print money, to the government, which can.
  • It would effectively fix international exchange rates – something that could potentially help us in our imbalance with China and other countries that have gamed the foreign exchange system to their advantage. (China would suffer inflation, U.S. deflation making our goods more competitive.)

This is all true. So far, nothing else has accomplished this in history. Bretton Woods worked only when there was a gold-exchange standard (1946-1971).

So, he knows what works. But then he offers reasons why not – Really Dumb Reasons.

It all sounds wonderful, of course, until you consider the downside:

  • Deflation is a necessary part of a currency on the gold standard. It absolutely crushes debtors. That's why politicians talked about the standard nailing people to a "cross of gold." When you owe money and your wages fall, you may be able to buy the same things at lower prices and maintain a quality of life, but your debt gets bigger.

It "absolutely crushes debtors." I see. So, from 1879 to 1933 in the USA, there were no debtors. They all were crushed. I had not heard this before.

What kind of rhetorical nonsense is this?

The gold coin standard was restored in 1879. The system had been abolished in the early months of the Civil War, in order to allow mass inflation of the currency to pay for the war. There was a bond market, 1879 to 1933 in the USA. Businesses issued them. So did governments. Banks lent money. How? To whom, after the debtors were "absolutely crushed"?

Read the rest of the article

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

© 2012 Copyright Gary North / LewRockwell.com - 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.


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