Skip to comments.Jeffrey Bell: Return America to the Gold Standard
Posted on 12/10/2010 6:48:02 PM PST by Tolerance Sucks Rocks
Jeffrey Bell, a two-time campaign adviser to Ronald Reagan, says its high time that the United States return to the gold standard, abandoned by President Richard Nixon in 1971. He cites Reagan as a proponent of the monetary regime and squarely blames current Federal Reserve Chairman Ben Bernankes policies for the ongoing global economic stagnation.
Bell is policy director of the American Principles Project. He served as an issues adviser in Ronald Reagans 1976 and 1980 presidential campaigns and was the Republican Partys nominee for the U.S. Senate in New Jersey in 1978.
Bernankes policies extremely low interest rates and flooding the system with unneeded dollars are feeding stagnation and making our debt problems worse, Bell tells Newsmax.TV.
Right now, Ben Bernanke, the chairman of the Fed, is printing dollars. Hes really just summoning them up from cyberspace, out of a computer, Bell says.
If he had to know that each dollar was something of independent value, backed by gold or some other commodity preferably gold it would be much harder for the United States to borrow all this money it does from foreigners in order to finance huge budget deficits.
Since rates are at zero, Bell says, nobody can tell what shape the economy is in or how long rates will stay low. The longer we stay at artificially low rates through money printing, the more the confusion grows, Bell maintains.
I think thats a big threat to the world economys sense of confidence, Bell says.
Bernanke has gone on the offensive, appearing on 60 Minutes to defend the Fed's $600 billion bond-buying plan. During the interview, he suggested that a third round wasn't impossible.
(Excerpt) Read more at moneynews.com ...
I heard this week the gold in Ft. Knox and all USA gold reserves by accounting rules is valued at $42.00 and ounce.
If true based on golds current value - it might be worth something.
I just sold an ounce on ebay last week for 1410.00USD.
I just sold an ounce on ebay last week for 1410.00USD.
How do we even know if America actually HAS any gold?
Abandoned by FDR in 1933.
Supposedly we did once according the Secrets Of Fort Knox.
Very true!Audit comes into mine to me.
Man I hope that's not what America's vaults look like!
Between the Komrades Klintons and 0, I wouldn’t totally rule it out, just keep it at the end of extreme possibilty.
We can’t go back to a ‘gold’ system.
1) There just ain’t enough gold in them there hills to back our currency use and debt.
2) It is possible that much of the gold we have, and other countries have, is gold-plated tungsten. Going to a gold backed system would mean there would have to be verification of all gold reserves, and the authenticity of the gold bars. If found to be ‘fake’, you can see what that would do to the ‘system’.
3) World bankers couldn’t rape the U.S. citizenry if it weren’t for us having to borrow everything from them. They don’t want us to have a gold backed system. They don’t want to lose control of the US and it’s assets.
So guess who wins ?
Are you sure there is any gold in Ft. Knox ?
America is the “Land OF OZ” built on a side show of politicians/BS artist.
FDR abandoned conversion of dollars by private individuals. The dollar was still convertible among central banks until Nixon.
Yeah, Well Clinton gave the Chinese the targeting technology to accurately hit our cities for a $100,000 campaign contribution so how secure do you think the gold is?
True,what gold,no one has seen it for years.
I have a question.
If our currency is not backed by gold, then who owns all the gold (if there is any) in Ft. Knox?
If it were possible for the typical bank to get through an all-out bank run unscathed, then the gold standard would be a good idea. But, unfortunately, deleveraging of the fractional-reserve system combined with a gold standard would lead to an all-out deflation. There's only one way to adjust debt levels to a lower price level: default. The 1930s stand out as an example of what happens when fractional-reserve deleveraging meets the gold standard.
Nowadays, I think it would be worse because the debt levels are a lot higher now than they were in 1929.
On the other hand...bankruptcy ain't what it used to be. Instead of the all-or-nothing option, it's not uncommon to reschedule. If the bankruptcy laws were amended to allow for an automatic rescheduling in the case of deflation, by the amount of the CPI droppage, it would contain a deflationary implosion because debt levels could be lowered along with the price level.
Example: if prices drop by 5%, the borrower has the option of imposing a 5% haircut on the principal and/or the interest payments required. It's not exactly the flipside of an adjustable-rate loan, but it's close.
Granted that such an amendment partakes of pick-on-the-creditor, and it would lead to higher rates to compensate for deflation risk, but it would well prevent massive defaults in an environment where the borrower is obliged to pay back in dearer dollars - and the consequent push to all-out defaults.
"Deflation rescheduling" would take much of the risk out of going back to a gold standard in a fractional-reserve environment by acting as a somewhat-painful vaccination against an outright credit implosion.
“There just aint enough gold in them there hills to back our currency use and debt.”
You misunderstand how a gold standard works. Dollars simply have to be convertible into gold at a fixed rate. Gold doesn’t have to back each dollar in existence.
There’s no reason to limit the money supply (and really, the size of the economy) to the amount of some shiny yellow metal we can dig out of the ground.
The Treasury Department.
Not true,the people own the government not the treasury dept.
We do - USA asset left over from the founding of the Fed. I am sure however if any move to get rid of fed to go to gold standard, the fed (a private company) would buy all the gold at 42.00 an ounce and sell it to us at 1,400.
FDR took us off the gold standard domestically; Nixon took us off the gold standard internationally.
The only problem is the us has the largest military in the world so the fed may have a hard time collecting anything but collateral damage.
“But, unfortunately, deleveraging of the fractional-reserve system combined with a gold standard would lead to an all-out deflation. “
That’s not quite accurate. Milton Friedman writes in ‘A Monetary History’ that it was the absence of deposit insurance that resulted in the collapse of the American money supply in the 1930s.
When banks failed in the 30s depositors were ruined along with the bank’s investors. One third of America’s banks failed between 1930-33 and an equal quantity of the money supply disappeared.
This hasn’t been the case since the invention of FDIC, which Friedman believed to be the most important innovation rising out of the Depression. The deflation of the 30s wasn’t something peculiar or inherent to the gold standard.
Yes, but you have to turn your mind inside out...
The market value of gold would be 10 - 20 k per ounce. I think that this will come about sooner or later, when many truths come to light and markets determine value.
Silver is not to be disregarded in this new reality and has historically followed gold by a 20:1 ratio.
“Theres no reason to limit the money supply (and really, the size of the economy) to the amount of some shiny yellow metal we can dig out of the ground.”
That was never how the gold standard operated. When Hamilton pledged to pay interest in America’s debt in gold that immediately bid up the value of the Continental dollar equal to gold. It is the willingness to exchange gold for dollars that is at issue, not a quantity of specie equal to the money supply.
“In 1936 the U.S. Treasury Department began construction of the U.S. Bullion Depository. The Gold Vault opened in January 1937, and was just receiving its first shipments of the nation’s gold reserves when the 7th Cavalry Brigade (Mechanized) rode to the aid of the beleaguered city of Louisville, struck by a major flood from the Ohio River. Fort Knox troops patrolled the city and established several refugee centers for residents of Louisville and several other flooded communities along the Ohio River between the city and the post.”
Yes, but EVEN if you value it in today’s dollars, its still pittance. Someone do the calculation. US have 8k tonnes gold
[ 1) There just aint enough gold in them there hills to back our currency use and debt. ]
WRONG... theres literally TONS of it and copper and some other metals too.. at the Pebble Mine..
The price of gold with a return to a gold standard will need to be set in New Dollars with every new dollar worth, as an example, 300 old dollars (today’s dollar). Thus $15,000 dollar gold would be valued at $50 in new dollars.
The return to a gold standard will be an acknowledgment of the defacto devaluation of the currency that has been unfolding ever more rapidly, particularly over the last two years.
Facing the music and calculating the gold value that will sustain a convertible currency price is the most responsible, but unfortunately one of the least likely actions that our government could make.
Letting the market lurch and quake it’s way to the true convertible currency value as we are in the midst of risks greater and greater disruptions, possibly leading to the most unwanted outcomes represented by the four horses of the apocalypse.
” I am sure however if any move to get rid of fed to go to gold standard,”
The Fed was created in 1913. The pure gold standard existed then and continued to be in effect for another 20 years, followed by nearly 40 more years of the gold bullion standard.
The existence of the Fed has nothing to do with the gold standard one way or the other. Abandoning the gold standard was a political decision made by a succession of Presidents.
Deposit insurance is like disease insurance. For non-contagious diseases, it works fine. Once a contagious disease starts spreading, it's not fine because the reserves get overwhelmed.
If a real deflationary panic set in, how many people would take the FDIC's word as golden? Especially given the fact that its reserves cover less than 1% of all deposits?
The reason why the FDIC worked so long, is because it was put in place at the right time. The damage was already done, and the scars lasted for more than a generation. The Fed's been aiding the FDIC ever since banking went wild in the '70s. Volker turned on the money spigot in 1982 because a Mexican debt crisis threatened the solvency of the big banks.
Dr. Friedman may not have been aware of it, but the FDIC is nuthin' without the Fed standing behind it. That's been the case since at least 1982.
Now, the question: if the Fed's wings are clipped by a gold standard, what'll happen is a deflationary panic really sets in?
You’re halfway there. Why do you think Nixon closed the window? Because France and other central banks where consistently presenting dollars to take gold. The gold supplies were dwindling. The same would happen today, but to a greater degree given how American finances are managed.
The amount of gold in the world has increased to 2x the level of 1900.
The amount of people in the world has increased to 7x tle level of 1900.
And gold *evaporates* in circulation! Like any metal, it wears out when transferred from hand to hand. (Why do you think coins have dates, anyhoo? To distinguish newer, unworn coins having full value from older coins.)
The only people that the gold standard would help are those who already own gold.
Having precious metals as our currency ranks up there with banning the automobile and returning to the horse and buggy. Stupid, stupid, stupid.
The American public refuss to accept this likelihood. I HAVE seen this occur, and still keep a 100,000 Ruble (circa 2005) note to show folks. At the time it was worth $20; and they’ve since lobbed off three 0’s.
A pension in 1989 payed you 100 Rubles.
It'd be more like banning credit cards and returning to rent-to-own.
Why would banning credit cards be good?
My home country, Canada, didn't have a central bank until 1935. There weren't any bank failures of consequence in the early '30s despite there being no deposit insurance. In part, that was because Canada's banks are bigger and fewer, but it was also because they were more prudent. Complaints about "stingy banks" are legion, even now.
FDR confiscated the largest free circulating stock of gold coin in world history, and just as important, reneged on all outstanding gold bonds and gold contracts.
Given the passage of time and hindsight, it was an incredible thing to do, not only from a constitutional perspective, but a pure power grab by the federal government. And given the complete nonsense in recent years it starts to make sense.
The gold owned by the Treasury even at market price wouldn’t have paid for the TARP, or maybe a month or so of gov’t operations. Don’t misunderstand - it’s a lot of money - say, 252 million ounces @1400 is roughly 350 billions.
Of course even this assumes that the gold, that has not been audited since Eisenhower was President, is still there, or has not been pledged, swapped, leased or sold, etc.
Next, a gold standard would require that a price peg be high enough to entice dollar holders to keep their dollars versus redeem them for gold.
Problem - the US doesn’t have enough gold, which brings us right back to the reason gold was severed from the monetary system to begin with.
There were plenty of bank panics and recessions up until the time the US let the gold standard in 1971. Even if you say that gold ceased to be monetary in 1933, there were plenty of financial or at least economic crises prior to 1933, obviously the crash of 1929, but equally notably the panic of 1873. I believe there was also a serious money crisis in 1908 and another one right after the end of WWI.
“If our currency is not backed by gold, then who owns all the gold (if there is any) in Ft. Knox?
Since money (Federal Reserve Notes) are borrowed into existance they actually represent debt. To the FED debt is an asset like an account receivable. The debt is collateralized with...what?
Perhaps there is your answer.
“Why do you think Nixon closed the window?”
The reason is the Triffin Dilemma, which began to surface in the late Eisenhower administration.
The collateral is the legislators’ promising we taxpayers will pay the debt the legislators authorize. Things like the highway fund are nothing but IOUs issued to rake off the taxes paid austensibly to improve roads and bridges, and IOUs to pay the Social Security promises issued by the legislators against the revenues collected under the auspices of guaranteeing a retirement income ... to be paid by the taxes collected on those still working. It’s all been a ponzi scheme since Jekyl Island.
FDR’s rationale for confiscating gold was in order to reprice it and thereby increase the money supply by a full third.
A new gold standard would simply have to restore convertibility, just as was done in 1876 after Lincoln had suspended convertibility in 1862. The conversion price could be the current spot price.
“the US doesnt have enough gold,”
The US “didn’t have enough gold” at any time that it was on the gold standard. When there is a gold standard actual demand for specie drops.
Given the extent of the crisis, the only way returning to the gold standard would work is if it were phased in gradually.
Yes, he raised the price from 20.67 to 35, netting the government a tidy profit. But the point is he outlawed money.
Think about that. Does that sound even remotely legal to you?
I’ll leave it to you to question the wisdom of Milton Friedman and Anna Schwartz.
“If a real deflationary panic set in, how many people would take the FDIC’s word as golden?”
The public doesn’t care whether it is the FDIC or the Fed backstopping their deposits. As long as they know that their deposits won’t vanish like in the 30s then you won’t have the banks runs and subsequent collapses of otherwise sound banks.
“Now, the question: if the Fed’s wings are clipped by a gold standard, what’ll happen is a deflationary panic really sets in?”
The Fed operated under a gold standard for 60 years. It’s not the Fed that gets its wings clipped. It is Congress and Presidents, who find that they don’t have an endless credit card.