Skip to comments.Balancing the Budget and the Trade Deficit is Easy: Return to Gold Standard
Posted on 06/01/2014 2:32:54 PM PDT by Kaslin
The Daily Ticker's Lauren Lyster conducted an interesting interview today with British Member of Parliament Kwasi Kwarteng on gold and balancing the budget.
To play the video, click on the preceding link.
Kwarteng is author of War and Gold, a Five-Hundred-Year History of Empires, Adventures, and Debt.
Kwarteng notes the historic stability under gold standards, specifically citing the 2008 financial crisis and national debt level as problems related to the Fed and printing paper money.
"The credit crunch, the credit bubble that preceded it, and the huge amounts of debt and deficits that we have are related to paper money," says Kwarteng.
Lauren asked "After the Fed has printed trillions of dollars, just to look at the past several years of expanding the money supply, how do you put the genie back in the bottle?"
"If the Chinese unilaterally declared that the renminbi would be pegged to gold it would essentially recreate the gold standard," responds Kwarteng.
Yet, Kwarteng admits that China's export policy likely precludes that from happening.
Missing the Boat on Trade
My one disagreement in an otherwise excellent discussion is that Kwarteng misses the boat on trade in a major way. He maintains that the UK cannot go back to the gold standard because of trade deficits. His take is governments need to balance budgets and increase exports first.
He has that point backwards. Trade deficits will not fix themselves. Competitive, beggar-thy-neighbor tactics would prevent that. And if the UK and US balanced their budgets, the pound and dollar would soar, and exports would drop.
In contrast, a return to the gold standard will not only fix deficit spending, but it will cure trade deficits in a flash.
That's what I mean by "easy". Certainly, the current political environment and the ensuing short-term pain would be anything but "easy".
The trade issue is extremely important. For a recap, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited.
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Congress won’t do it.
Why should they?
The 1929 stock-market crash happened under a gold standard.
The Panic of 1870 (or so) happened under a gold standard.
Along with several others during the 19th century.
That's what elections are for. And if patriots and former Obama supporters can organize to elect 2/3 conservative majorities (both Democratic and Republican) to both Houses of Congress in the 2014 elections, then Congress can return to gold standard without Obama's signature.
You mean, aside from the ‘old’ Constitutional thang (IE: no authority to delegate, let alone specifying gold/silver. Or that the Fed note, in ~100 years, had ‘depreciated’ by 100% (ah, but like most things gov’t there WAS a time of ‘equal swap’ (silver certs))?
Lastly, I think your first example is moot...happened AFTER the Fed act (and though many would say caused by the same, just proves that even they had no gumtion/ability to ‘stop’ the crash either)
It would, of course, be the end of welfare (reparations), so it won’t happen.
I see... get rid of the President, most all of Congress and at least 3/4 of the Supremes and YOU COULD DO IT..
Otherwise... they got a re-education camp with yer name on it..
I have a feeling this is going to happen.
A question for the “gold bugs” out there.
What if the US mint produced silver and gold coins that accurately reflect the value of the metal plus some “additional value” as a currency?
That is, currently silver is around $19/ounce. So what if the mint stamped very pure silver as a $100 coin? Perhaps with laser hologram engraving, then encased it in a tamper resistant container?
Gold is around $1260/ounce, so why not a $5000 gold coin, a $2500 half ounce, and a $1250 quarter ounce?
A silver double eagle would be a good start.
It’s mystifying why the mint makes specie coin that is just a fraction of the value of the specie. I agree that a hologram silver double eagle would be glorious, and that they would sell a lot at $100.
These days, with the price and scarcity of metal, the last place such coins should be are in your pocket. That’s why I suggest tamper resistant containers.