Gingrich: Say, that gold standard looks like a pretty good idea
posted at 1:55 pm on January 18, 2012 by Ed Morrissey
Could Newt Gingrich steal some of Ron Paul’s thunder to generate enough support to beat Mitt Romney in South Carolina? It might be difficult to swing Paul voters to another Republican candidate, even in the general election, but it looks like Gingrich plans to give it a try. Daniel Halper at The Weekly Standard reports on Gingrich’s decision to raise the issue of a return to “hard money” and the gold standard:
“We need to get our house in order. And we need to vaccinate ourselves against foreign contagion. The correct answer to the Euro is not to spend more American money propping up the Germans who prop up Southern Europe. The correct answer is to figure how we seal our banks off; how we make sure we protect ourselves and then say to the Europeans: you have a problem and you need to solve it.
“Part of our approach ought to be to reestablish something Ronald Reagan did in 1981 and that is to have a Commission on Gold to look at the whole concept of how do we get back to hard money.
“We need to repeal the Humphrey-Hawkins Act. We need to say to the Federal Reserve: your only job is to maintain the stability of the dollar because we want a dollar to be worth thirty years from now what it is worth now because that optimizes saving and investment because people know what they are going to back.
“The very purpose of founding the Constitution was landowners and property owners who did not want inflation. And they felt that under the Articles of Confederation they were increasingly getting inflated paper money.
“Hard money is a discipline. It means you can’t just hide from your problems; you’ve got to solve them. And you can’t inflate away your difficulties; you actually have to work them away. But I think it is very important for us to understand in finance that the entire contraption that has been built up over the last thirty or forty years has so much paper in it, so much debt, so much leverage, that we probably have a fifteen or twenty year period of working our way out of it.
“And yet, the alternative is to get sicker and sicker and sicker.”
If that sounds familiar, it’s because Ron Paul has been offering that policy for decades, both on the stump and in his newsletters (the latter of which contained a whole lot of other less-savory notions, too). Gingrich doesn’t quite go as far as to call for a return of the gold standard; a careful reading of this statement reveals a pledge to study the issue, as Reagan did in the 1980s. Unless my recall is faulty, though, that effort in 1981 didn’t produce any action on behalf of Reagan or the Republican Party to push through a move back to gold or any other hard-money system.
Putting aside the historical allusions, though (there were a lot of reasons that the Articles failed, and inflation was hardly the worst of them), this could be dangerous ground for Gingrich. He already has a reputation for offering “bold” ideas that few people actually want. Outside of the Paul contingent, most people would not identify the gold standard as one of the most pressing goals for the US. In theory, it sounds like a great idea, and Gingrich is correct that it would put serious limitations on government — but we would have to implement those limitations prior to a return to the gold standard under current conditions, and the limitations are an end unto themselves without having to add the complication of explaining a return to the gold standard on top of it.
Still, it’s a clever little signal to Paul’s supporters, at relatively low risk, since only Paul would want to extensively debate the gold standard in this cycle. It’s a wink that says, When you realize that your candidate doesn’t stand a chance, remember who agrees with Paul’s fiscal policies, as well as a hint to other Republicans that Gingrich could keep Paul’s voters in the tent in November. We’ll see whether that helps Gingrich in South Carolina.
Blowback
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Yes, because the gold standard is a brand new idea that hasn’t been discredited ever.
If Newt, or any other person, got up and said we should make cars out of adobe instead of steel I’d say it’s a stupid idea even if he never talked about it before. Some things are just common sense. Mud-based cars won’t work, and neither will a gold standard.
JohnTant on January 18, 2012 at 2:53 PM
Newt Gingrich – Principled conservative who never flip flops for money or panders for votes! As an added bonus, he’s on the ballot on all 50 states!
Swerve22 on January 18, 2012 at 2:53 PM
Someone should ask Newt Gingrich if he’s a defender of (a) putting the monetary policy under congressional control, (b) free-banking, (c) wants to impose a metallic standard or (d) wants to outlaw fractional reserve banking all together like Paul.
Just to mess with him.
I suspect Newt has no clue what he’s talking about here.
joana on January 18, 2012 at 2:53 PM
Not at all. The legislative and executive branches of our government should be making sound fiscal policies without having to change the federal reserve policy.
You’re like a kid blaming the concept of credit cards because his parents ran up too much debt. The concept of credit cards is incredibly valuable – your parents deserve the blame!
blink on January 18, 2012 at 2:53 PM
But, but, but, but Newt isn’t saying that we should make cars out of adobe – he’s just saying that we should study and discuss the issue. /
blink on January 18, 2012 at 2:55 PM
On a side note, I did create my own currency called the “Barackazillion”
It’s the world’s strongest currency, and will take care of all your debt. It’s as “good as gold” and even has a picture of Fort Knox on it. It’s also the only currency with a smiling president on it.
http://barackazillion.com
Fed Up on January 18, 2012 at 2:55 PM
When you boil it down, it’s deficit spending that’s the problem. You either pay the bill with tangible assets via hard money, or you make currency holders suffer by inflating the debt away. Either way, “we the people” get screwed.
Meanwhile, the politicians go happily on their merry way, having gotten what they really wanted with all that deficit spending in the first place – power and votes.
DRayRaven on January 18, 2012 at 2:56 PM
I know. “IT’S TOO CONFUSING!!! JUST TURN THIS PARTICULAR FUNCTION OF THE MARKET OVER TO THE GOVERNMENT!!!”
Most likely, “12 competing currencies” would be narrowed down to 3 or 4, which will be very close to each other in purchasing power, because of the competition. The banks themselves would handle most of the rate exchanges behind the scenes. If worse came to worst, Bank of America would tell its customers that it will no longer accept JP Morgan Chase dollars at full value, because JPMC devalues its dollar too much. There is no similar outside control in our present situation.
cavalier973 on January 18, 2012 at 2:57 PM
As usual you miss the point & set up your own strawman to knockdown.
Anybody who is arguing that the Fed as performed without fault is either
A) a shill
or
B) Did not pay attention to the events post 2007.
tetriskid on January 18, 2012 at 2:57 PM
The dollar has collapsed by 97% against gold since the Fed was started 1913.
The only way the gold standard doesn’t work is if you give monopoly rights to one institution to issue money – they will then devalue, i.e. go off the gold standard. In other words, the gold standard does work. The problem is when you have Stalinist central planners going off it.
ebrawer on January 18, 2012 at 2:59 PM
What part of illegal don’t you understand? The Federal Reserve is an illegal and criminal organization running a counterfeiting operation.
Sure the parents are to blame, but risk is an essential part of any free market. The consequences of taking bad risks with your credit issuance is the fault of the lender and no one else’s. Personal responsibility is a two way street. In your hypothetical and in the real economy, blame is to be placed upon the irresponsible, both those who spend irresponsibly and those who lend irresponsibly.
abobo on January 18, 2012 at 3:00 PM
As for Newt, hilarious to see him warble about a gold standard. Under a gold standard, the racket he had with Fan and Fred would not be so casual, to say the least.
Gold standard is the noose that would lynch spendthrift ideologies like liberalism, socialism, neoconservatism, and with it, Washington insiders like Newt with access to the spending levers.
smiley on January 18, 2012 at 3:00 PM
@JohnTant: In fact, watch this 1m:52s video.
De Gaulle breaks it down for you.
http://www.youtube.com/watch?v=i-g2iGskFPE
ebrawer on January 18, 2012 at 3:00 PM
I don’t think you’re getting it. I’m running a business. You hand me a BofA dollar. My prices are denominated in Citibank dollars. How do I know what the correct price to charge you unless I have a handy, updated currency exchange chart? That’s not something that will be handled “behind the scenes” but will factor into every transaction in the economy.
JohnTant on January 18, 2012 at 3:02 PM
Gold is a very valuable industrial commodity these days. It wasn’t that way in 1913.
pedestrian on January 18, 2012 at 3:02 PM
Say, isn’t Newt a member of the Council on Foreign Relations? And isn’t his middle name Leroy, and isn’t Leroy a Jewish name? And what about his connections to the the Trilateral Commission? And didn’t Newt once say he thought government mind control via water fluoridation was a fine idea? And didn’t he take a ride in a black FEMA helicopter? And isn’t his wife Callista the result of a Bildersberger breeding program codenamed Project Barbie?
I don’t know, Ron Paul true believers. I’d be very careful about jumping on the Gingrich bandwagon, if I were you. I think you’re being set up by the Illuminati.
troyriser_gopftw on January 18, 2012 at 3:03 PM
Yikes. I actually thought Gingrich was smarter than this.
Maybe the way to “seal our banks off” is to move them to Mars.
J.E. Dyer on January 18, 2012 at 3:04 PM
How much has the stock market gone up since 1913? Many times more than the value of gold relative to the dollar.
Hence this is a meaningless statistic.
And only an idiot would hold all their assets in cash. This is why you diversify with real estate holdings, bonds, dividend stocks, and also educate your offspring so that they don’t become parasitic leaches and can hold a salary themselves.
haner on January 18, 2012 at 3:05 PM
Anybody who claims that I claimed that the fed is perfect is either…
blink on January 18, 2012 at 3:06 PM
By that logic Silver, which has near infinite industrial applications, would be reaching parity with Gold by this point. Face it, there’s no way on earth to spin the abysmal job the fed’s done trying to live up to it’s anti-inflation mandate.
abobo on January 18, 2012 at 3:06 PM
Yeah, I’m glad I can reliably look at a thermometer and see that it’s 32 degrees outside. Wait! That says “0 degrees”. And that one says 273.15K! What’s a “K”?
IT’S TOO CONFUSING!!! GOV’T SHOULD TAKE OVER AND MANAGE ALL THERMOMETER MANUFACTURING!!!
cavalier973 on January 18, 2012 at 3:06 PM
It didn’t work during the Gilded Age when we had chronic depressions and bank runs. A fixed money supply didn’t work in the 30s because deflation is too slow and chaotic to rely upon, with chronic unemployment being the actual result of an insufficient money supply. It won’t work now because there isn’t enough gold to cover the economy. Fractional reserves are indistiguishable from fiat for the same reson you hate fiat so much…that simply changing the fraction creates or erases money. You can’t simply declare an ounce of gold to be worth a trillion dollars because the market has already arrived at a dollar/gold conversion rate and trying to override that will disrupt your monetary system. Plus a gold standard means less scrupulous countries (like, say, China) can play games with your economy, not to mention the lack of insulation against economic downturns elsewhere in the world and us.
The problems with a gold standard are too systemic to blame on the standard not having been imposed correctly.
JohnTant on January 18, 2012 at 3:07 PM
The part where you don’t describe anything illegal.
blink on January 18, 2012 at 3:08 PM
Good grief.
blink on January 18, 2012 at 3:08 PM
Again, you’re like the kid that blames the concept of credit cards on his parent’s excessive credit card debt. It’s stupid for the kid to demand an end to credit cards. The kid should be demanding that his parents stop running up excessive debt. And by the way, the parents can run up debt with or without credit cards.
blink on January 18, 2012 at 3:11 PM
I see what you mean. Because neither Bank of America nor Citbank would ever figure out how to get that information to you in a timely manner. The free market is good for some things, but customer service surely isn’t one of them.
cavalier973 on January 18, 2012 at 3:12 PM
Silver is 0.07 ppm of the lithosphere while gold is 0.0011 ppm. The ratio is 63.
Price of gold is 1658, silver is 30.4. Ratio is 54.
Next question?
pedestrian on January 18, 2012 at 3:13 PM
We don’t have a monetary problem. We have a debt problem. Stop blaming the lenders – blame the borrowers. The borrowers will always find a way to borrow, and the only way to stop the lenders is to get the borrows approval to do so.
blink on January 18, 2012 at 3:16 PM
exactly
pedestrian on January 18, 2012 at 3:17 PM
There was still a fractional-reserve banking system that was backed by the government. When a bank (especially a large bank) lent out more gold than it had in its vaults, and people went to the bank to collect their property (gold coins, etc), the government said that the bank did not have to turn over the property, but could issue paper instead. “Suspension of specie payment” I think it was called. The situation was still better than what we have today, because at that time, malinvestments were allowed to liquidate much more quickly. The Federal Reserve is not allowing liquidation of malinvestments in its quixotic quest to abrogate the laws of economics, and so when the real crash inevitably comes, it is much, much worse than it would have been at an earlier point.
cavalier973 on January 18, 2012 at 3:19 PM
Well, you try getting a live person to answer the BofA customer service line…..
You either forgot the /s or you really are this passive-aggressive.
The point is, right now, I don’t have to. I mean, jeez…in the here and now for international companies currency gains/losses are actually pretty huge deals. Multiply that by 12 and by the number of domestic companies and you have an idea of the scale of the problem you’re introducing. Plus, what if I never heard of Cavalier973 dollars? How do I know they are backed by gold and not fractional reserves? In fact, during the 19th Century this was an actual problem with regional currencies.
You are submitting a solution that doesn’t actually have a corresponding problem. We have a fiscal crisis in the US, not a monetary one.
JohnTant on January 18, 2012 at 3:20 PM
This sentence leads me to believe that you don’t know what a bank is and how it works. It also leads me to believe that maybe you’re against the entire concept of a bank.
blink on January 18, 2012 at 3:21 PM
No, blame the government, which creates perverse incentives to borrow rather than save. What’s the point of putting part of your paycheck into a savings account that pays less than 1% interest, when price inflation is around 4%? Why wouldn’t someone borrow at an artificially low interest rate, or refinance at 0% for 6 months, moving their balance to yet another credit card?
cavalier973 on January 18, 2012 at 3:22 PM
No problem there.
Again, you’ve missed the point.
It’s not the fed that is causing the inflation. It’s our fiscal policies that are forcing the fed to be more tolerant of inflation.
And I didn’t mean that we have a consumer debt problem – I meant that we have a government debt problem. Regardless, 4% inflation doesn’t give anyone the incentive to borrow at 20%.
blink on January 18, 2012 at 3:27 PM
Believe whatever you like about me.
A bank serves two functions in the economy; warehousing money and facilitating transactions between borrowers and lenders. In England, the goldsmiths discovered that they could lend out more gold receipts than the gold they actually had on hand (which is called, I think, “cheating”), because depositors of gold did not attempt to withdraw all their gold out at regular intervals. This fractional-reserve banking became a traditional feature of banks, even though it violated one of the prime responsibility of banks–warehousing money. (Imagine if you dropped your suit off at the cleaners, and the next day they tell you they lent your suit to someone else, but here’s a picture of your suit until you can get it back.) Governments like fractional reserve banking, because it makes borrowing easier and cheaper in the short run. But it creates distortions in the economy that lead to the “boom-bust cycle”.
cavalier973 on January 18, 2012 at 3:29 PM
First, I think you are misstating (or you misunderstand) the problems behind fractional reserve. In fact, the idea of overlending reserves exists whether you have fiduciary currency or not.
That aside, it’s just as much of a law of economics that an insufficient money supply stifles growth. What’s ironic is that you are assuming “malinvestment” in just as capricious a manner as you accuse the Federal Reserve of acting when it seeks to minimize inflation and unemployment through monetary policy.
Food for thought…under your preferred system we had at least eight recessions turn into depressions. Since 1945 (and the abandonment of the gold standard) not one recession has turned into a depression. If you’re trying to argue a crash is coming, well, it’s been 67 years and your song is getting stale.
JohnTant on January 18, 2012 at 3:29 PM
Fiscal policies cannot create inflation, because fiscal policies do not increase the amount of money available. Fiscal policies must reduce the amount of currency held by one group in order to increase the amount of currency of another (usually the government). The Federal Reserve increases the available supply of money, so that each side has more money than they otherwise would, hence, inflation.
cavalier973 on January 18, 2012 at 3:32 PM
The Federal government creates the massive debt. But it’s the Federal Reserve that enables this reckless behavior.
Emperor Norton on January 18, 2012 at 3:33 PM
My suspicions were correct. You don’t know what a bank is.
A depositor of a bank does NOT enter into a transaction with a person getting a home mortgage.
blink on January 18, 2012 at 3:34 PM
We’ve never had my “preferred system”; it has always been a government-controlled money supply (even if the “gov’t” were a state government that mandated state bonds be used to capitalize banks within the state).
cavalier973 on January 18, 2012 at 3:34 PM
So your “argument,” such as it is, is to go to commodity money?
How do you reconcile the fact that we have an approximately $15 trillion economy but all the gold ever mined in the world ever comes out to about $1.89 trillion? Where are you going to get the gold to cover the remaining economic activity of the US?
JohnTant on January 18, 2012 at 3:35 PM
Yes, you don’t know the difference between a bank and a central bank. Sad.
blink on January 18, 2012 at 3:35 PM
And it is you, yourself, who does not understand the bank’s function. The bank doesn’t lend its own money to borrowers (then it would be a “loan company”), it lends its depositor’s money.
cavalier973 on January 18, 2012 at 3:36 PM
I’ve got to go to work, but my point, in a nutshell, is that the gov’t is too incompetent and corrupt to have a monopoly on the money supply. Allow some competition in there.
cavalier973 on January 18, 2012 at 3:37 PM
Sorry Newt. I’m too busy smoking pot to vote for you.
gyrmnix on January 18, 2012 at 3:38 PM
Gold is up 87.63x since 1913.
The S&P 500 is up 73.82x since it opened on the 3 of January 1950.
The S&P 500 and gold are both exponential charts (i.e. they basically follow the paper money supply expansion profile.)
But anyways, why is the statistic meaningless? Gold (money) vs currency (a substitute for money) = dollar crashes by 97% in less than 100 years… Meaning it is extremely weak and prone to systematic devaluation. It’s pretty important.
The stock market has barely moved in 10 years, and the point of this data is to show that inflation is being understated by the government. Anybody in the stock market for the last 10 years has been CRUSHED by inflation, but they don’t even realize the extent of it.
THAT is why it is important. Of course you don’t want to only hold money – you don’t gain purchasing power with it (normally). That’s what investing is for.
Way to miss the point. Next -
There were bank runs and depressions during the Gilded age due to local banking laws (i.e. no risk diversification) and the bimetalic standard (i.e. money printing).
It didn’t work in the 30s because we weren’t on a pure gold standard in the 20s or 30s. We were in a gold exchange standard in which the Fed created a massive monetary expansion in the 20s that had to be deflated. Even then FDR devalued in 1933 (i.e. crashed the dollar).
If we had a gold standard, there wouldn’t have been the 20s boom. It’s the same as for the UK. They have a gold standard, go off it for WW1, try to go back on at the same exchange rate in the 20s, they get a depression, and then finally blame gold and go off it in 31. If they had adjusted the exchange rate to reflect the printing they did in WW1, it would have worked fine. Maybe the Fed wouldn’t have inflated to help the UK, and we wouldn’t even have had the great depression.
Gold is always blamed after it is not adhered to. And the reason it is not adhered to is that the state is given monopoly control over the issuance of money.
Fractional reserve is essentially a form of fraud, but even then at least you have market forces to limit it.
With the FDIC everybody tries to have reserves of 0%, so we need to regulate the fuck out of everything and when it fails (i.e. Fed prints and
NASDAQhousingtreasuriesform a bubble the entire economy goes down.ebrawer on January 18, 2012 at 3:39 PM
I’m thinking you aren’t working anywhere in the financial services industry. :)
JohnTant on January 18, 2012 at 3:41 PM
Fiscal policies are to blame for creating inflation. Deficit fiscal policies restrict the flexibility of central banks in dealing with inflation. Central banks can’t contract currency supplies when they are constantly forced to issue.
blink on January 18, 2012 at 3:45 PM
Does hyperinflation only impact fiat-currencies and not hard currencies?
If so, will QE1, QE2 and, now, QE3, hasten the possibility of hyperinflation?
If so, since the Federal Reserve is a private corporation and not a governmental entity, should the Federal Reserve be permitted to unilaterally engage in quantitative easing in a Constitutional republic?
classical liberal on January 18, 2012 at 3:46 PM
The last time we had an organization like the Federal Reserve we got rid of it. And the head of the National Bank threatened to run the country into the ground if it was abolished… mind you there was a major problem in the economics of Europe at the time so it was pretty much a guarantee we would get some of that, too.
And the problem, described then, could be written fresh today with very few modifications:
Apparently we are so incredibly smart that we can’t learn from history and, therefore, we repeat our mistakes.
And the solutions then are very much the ones being proposed now… save they were already on the gold standard… but the system that Congress put in to control it had many of the same artifacts as our current system. At least Congress had to re-up the thing back in the day… today that wisdom has flown out of our heads, as well.
ajacksonian on January 18, 2012 at 3:46 PM
Yes, we all understand what you want. It’s strange that you see this as having any impact on anything.
blink on January 18, 2012 at 3:47 PM
How many times has Congress voted to increase the debt ceiling?
Something tells me that Congress wouldn’t hesitate to perpetually “re-up” the fraction in any fractional gold standard.
blink on January 18, 2012 at 3:54 PM
Newt should court Paul voters. Just like them he’s trying real hard to win another term for Obama. Just like them he’s angry, hypocritical, liberal and insane. You can have them Newt, neither you nor Ron Paul belong in the Republican party anyway.
Buttercup on January 18, 2012 at 3:54 PM
Never heard of a credit card company quantitatively easing myparent’s debt.
besser tot als rot on January 18, 2012 at 3:58 PM
Obviously, you don’t understand quantitative easing, and if your parents have ever been offered more credit, then they actually have kinda had quantitative easing.
blink on January 18, 2012 at 4:00 PM
Better than trying really hard to govern like Obama like Romney did.
besser tot als rot on January 18, 2012 at 4:01 PM
Oramney vs. Obamney in a debate in 2012
Pretty much what Debbie Dishwater Schultz would say on a Sunday Talk Show… till they silenced her.
/Where in the world is Dishwater Schultz?
Key West Reader on January 18, 2012 at 4:02 PM
It’s the other way around.
The word inflation refers to the inflation (i.e. expansion) of the money supply.
When the supply of money is increased faster than the supply of goods (gross/quick approximation here but it works), you then notice a general increase in the price of goods, because there is more money chasing the same amount of goods (relatively).
Central banks are created for one sole purpose – to PRINT. And when they use that new money to purchase the country’s treasury bonds, they increase the demand for bonds and thus their price, making it EASY for the government to raise money to deficit spend.
If the ONLY way for the government to raise money was to either tax hard money from citizens or borrow hard money from governments, there would be a MUCH lower limit to what they can borrow before the interest would become prohibitive.
In that case, the only reason to borrow would be if you were in a total war against a mortal foe.
Under the current regime, the government borrows to pay back the interest.
They don’t have to TAX directly to spend – they tax indirectly through the inflation tax. They steal purchasing power.
If the government tried to raise what it raises indirectly through direct taxation, there would be a revolution – so they wouldn’t try. Now imagine if that was their only choice… The conclusion is fiscal responsability.
ebrawer on January 18, 2012 at 4:04 PM
Actually, he’s not on the ballot in all 50 states. Neither is Santorum and Perry.
The only candidates who will be on the ballot in all 50 states for the GOP primaries are Romney and Paul.
popularpeoplesfront on January 18, 2012 at 4:05 PM
Raising the debt ceiling is like (as in virtually identical) to a cc company extending additional credit and has nothing to do with quantitative easing. Why dont you try to figure out what QE is before you comment on it?
besser tot als rot on January 18, 2012 at 4:05 PM
Question:
What happens when Obama “raises” the debt ceiling and China says No?
/
Key West Reader on January 18, 2012 at 4:07 PM
What?
Raising the debt ceiling just means the government can statutorily try to borrow more money. It does NOT mean that debt is automatically assumed.
For example, hey, I just voted to raise my debt ceiling but the bank still won’t let me borrow money.
JohnTant on January 18, 2012 at 4:07 PM
Well, Obama still beats them all… On the ballot in 57 States!
/Obama 2012.
Because you need more “change”
Key West Reader on January 18, 2012 at 4:09 PM
The shame of this is that he could have been much more effective spokesman for (ahem) Pauline ideas than Paul himself if he had integrated them into his campaign rather than as a last-ditch effort to capture Paul voters after two states have already voted.
HitNRun on January 18, 2012 at 4:12 PM
Smart move by Gingrich.
A return to the gold standard is actually one of the few Ron Paul policy positions that I actually agree on.
Norwegian on January 18, 2012 at 4:13 PM
Wow, I’m sorry I missed so much of this discussion!
There is, in fact, real public interest in discussing the gold standard and other sound money policies. See here: http://finance.yahoo.com/news/October-Surprise-Can-Gold-Be-xfoftp-3327442108.html
I think it is very hasty to say that this is “an idea that no one wants to hear about.” Frankly the Fed’s out of control printing and the government’s out of control spending desperately NEEDS a discussion. It’s unfortunate this is probably Newt trying to reel in some Paul voters.
Doomberg on January 18, 2012 at 4:14 PM
GMTA
China is broke. Newzflash!
Key West Reader on January 18, 2012 at 4:14 PM
Going to a gold standard cannot and will not create a constant price for currency.
We all know that price is dependent on two things: supply (which a gold standard makes constant) and demand. Even if we were somehow able to shut out the international currency markets and keep every gold-backed dollar ever to be issued within US borders, the demand for currency will change within the US itself because the population is not constant.
A population needs a certain amount of currency with which to do business. If we increase the population (natural growth over time + immigration), then all of a sudden we have more people who say “I want some dollars” because all the local stores only take dollars as payment. If there is a fixed number of dollars, then there are fewer dollars to go around. A gold standard is quite literally zero-sum economics because it prohibits the creation of more dollars as gold cannot be created out of thin air. With fewer dollars to go around, people have fewer dollars altogether, and prices go down. This is called deflation, and deflation is almost certain to occur if Ron Paul or Newt Gingrich decides to decrease the number of dollars in circulation in order to meet some arbitrary gold target.
Deflation is terrible because it keeps people from paying off debt. You think the mortgage crisis is bad, because people could no longer afford to pay $250,000 mortgages while out of work? Imagine that you have a job, but all of a sudden, instead of making $40,000 a year, you make $35,000 a year. All that extra cash you were making to help pay off your mortgage is now gone, and you will have more difficulty paying off your loans. Inflation helps people pay off debt, because the amount of money you owe remains constant despite you being paid more money.
Currency is just like anything else – the supply has to be managed to meet demand to keep the price of the currency constant. This requires a central bank – central banks are not inherently evil.
That said, the old NRA maxim still applies. “Guns don’t kill people, people kill people.” Similarly, central banks don’t devalue currency, people devalue currency. If the people who head the Federal Reserve didn’t do their job properly – Ben Bernanke and others – then they should be held accountable. But the fact that the tool of central banking was misused is not an argument against central banking itself, just like the argument that guns can be misused is not an argument against people owning guns.
solatic on January 18, 2012 at 4:18 PM
Holders of American debt are totally screwed. Tis a fact that must and will be acknowledged before the election of 2012.
I say we offer Obama a severance package: Leave now. With only your record and your reputation intact. You’ve lost any sense of dignity. Admit that you will be judged in the future as the worst mistake ever made by a representative Republic. Hide your head in shame, and if you ever make a speech that results in any revenue, you will immediately tender any said revenue and/or proceeds to the Treasury of the United States of America.
And, we don’t take hopenchange as currency.
Key West Reader on January 18, 2012 at 4:20 PM
We keep electing the borrowers. They are only doing what we keep electing them to do. It’s the lenders, Always
AlexJ on January 18, 2012 at 4:20 PM
I have to disagree on this one.
Saying fiscal policies are to blame for creating inflation and not monetary policies is like saying that my wife running up her credit card is to blame for me robbing a grocery store to pay them off.
My point being, had the Fed not artificially lowered interest rates, interest rates would be higher causing people to save more rather than consume.
But because the Fed is artificially keeping interest rates low for the political purpose of economic growth, mal-investments are not liquidated and people continue to consume savings, rather than build savings up, as is necessary for a true recovery.
Stated differently, because of bad fiscal policies Americans need to take their medicine now, but poor monetary policies retard that process with the result that the inevitable will be worst.
classical liberal on January 18, 2012 at 4:20 PM
Point taken. I guess I don’t see any way to keep blink’s cc analogy together.
besser tot als rot on January 18, 2012 at 4:22 PM
That must mean that VA and MO are no longer states but we’ve added 2 more, because his is not on the ballot in MO or VA.
ConservativePartyNow on January 18, 2012 at 4:23 PM
Nothing. The Fed is the largest purchaser of .gov debt.
AlexJ on January 18, 2012 at 4:28 PM
That argument might not provoke the laughter that it is, if Newt had the foresight to not say he would not vote for Ron Paul if he gets the nomination.
That right there pretty much makes any Gingrich-Paul rapprochement impossible.
JohnGalt23 on January 18, 2012 at 4:28 PM
Ladies and Gentlemen. Please pay attention to Stupid, as outlined above. This is the product of Generation Gimme.
Generation Gimme sees nothing wrong with ‘borrowing beyond your means of repayment’. Generation Gimme expects its parents to pay $75k for the study of genetalia, et al., and expects to graduate with a guaranteed contract of employment in excess of $100k per annum plus bonus, retirement, pension and tenure.
Generation Gimme has a rude awakening.
Let’s try not to be Greece. We won’t, but it’ll take a few face slaps and time outs to rein these OWies in.
Key West Reader on January 18, 2012 at 4:34 PM
I am assuming that you are NOT Alex P. Keaton.
Key West Reader on January 18, 2012 at 4:36 PM
Compare gold and the S&P directly and you see some interesting things.
Yes, only an idiot would hold all assets in cash, because the Federal Reserve is slowly taxing cash through inflation. If you hold cash for any length of time it WILL lose value because of inflation. That loss of value is a hidden tax, since the currency is slowly devalued as a result of monetary programs enacted due to deficit spending.
popularpeoplesfront on January 18, 2012 at 4:38 PM
Wow.
Dante on January 18, 2012 at 4:42 PM
Depends on whether the currency issuers are using a fixed or floated exchange rate.
Right. Though gold is mined at about the same rate as population growth. It’s a funny coincidence.
Yes, under a gold standard you observe slight deflation over long periods of time. Basically it tracks technology… Sort of how computers are going down in price all the time. It wouldn’t be as quick as that though.
But you’re wrong that we would deflate to go on the gold standard. To successfully go on the gold standard, the Fed would have to get ahead of the curve and peg the dollar to say $7000/oz (i.e. they would be buyers at $6950 and sellers at $7050). It would instantly reveal the pent-up inflationary pressures that are threatening to suddenly be reflected in general prices the second monetary expansion resumes (i.e. we get back on the exponential curve we left in 2008).
You were making 40k, now you make 35k. On the other hand your food/has/consumer goods prices would go down by just as much. And this would be over 100 years.
And besides, your mortgage rate would be extremely low. This only sounds scary if you take the current economic system and only transpose in deflation, omitting the rest of the context.
Under a gold standard, there’s nothing scary about prices going slightly down over time. Do you refrain from buying an LCD because the price goes down every year? Do you kick yourself for leasing a car because you car is worth less and less (thus the lease payment is less and less worth it – e.g. in 2008 you’re paying $500/m on a brand new car, and in 2012 you’re still paying $500 for an old car). All of this works fine in context. Deflation is not scary when it’s not associated with a massive bubble collapsing.
Fiat currency requires managing. Managing requires a central bank. Fiat is evil. Central banks that manage fiat money are thus evil.
The central bank is not some gun that can help us or hurt us depending on how competent the Fed chairman is. The central bank is a gun pointed at the head of every US dollar bearer threatening to fire at any moment.
It’s not a tool that can be misused – it’s a WMD. It’s like a mortal supervirus. There is no “good” use for it. It’s only purpose is theft of purchasing power.
The Fed is a banking cartel. The US government passed the laughable Sherman Act in 1880. In 1913 it allowed the entire banking sector to form a monopoly cartel under it’s own protection.
ebrawer on January 18, 2012 at 4:43 PM
My point was, that we keep electing the same people, over and over, that see no problem with spending us into oblivion. They are also the same people that enact the laws that force the banks to loan to those they otherwise wouldn’t. They are also the people that appoint the unacountable that agree to buy the toxic assets so that even the banks don’t have to feel the pain of bad decisions. We are the lenders. By electing these jerks we are lending our grandkids futures.
AlexJ on January 18, 2012 at 4:47 PM
Yep, that Newt… if there is one thing he learned in his years in office, it was how to pander.
I hate Newt almost as much as I hate John McCain. If I have to vote for him I may throw up on the ballot.
E L Frederick (Sniper One) on January 18, 2012 at 4:47 PM
As I recall, Reagan was shot fairly early into his first term.
drlax15m on January 18, 2012 at 4:49 PM
Correct. Just a guy who monitors bond auctions.
AlexJ on January 18, 2012 at 4:51 PM
I went to Google and now here is this black rectangle on my screen. How do I erase it?
SparkPlug on January 18, 2012 at 4:52 PM
1) There are other ways to discuss monetary policy and the Fed that don’t involve scenarios like a gold standard and outlawing fractional reserve banking.
2) Most people have no clue whatsoever about the economic consequences of reintroducing metallic standards.
joana on January 18, 2012 at 4:55 PM
Paulbots probably lying about their leader’s popularity with the military:
http://twitter.com/#!/PatDollard/status/159166597540478976
mudskipper on January 18, 2012 at 4:55 PM
So Romney tried really hard to govern like Obama even though Obama never governed anything ever let alone while Romney was Governor? What?
Buttercup on January 18, 2012 at 4:58 PM
If you don’t like him, then why would you have to vote for him? Have is a strange choice of words.
Dante on January 18, 2012 at 4:59 PM
You’re aware those numbers come from the FEC and what Paul supporters do is to hype them, right?
joana on January 18, 2012 at 5:01 PM
+ 10000000
jsunrise on January 18, 2012 at 5:09 PM
Steve Forbes has been pushing for a return to the gold standard for years. IIRC, the gold standard and the flat tax was the centerpiece of his prez campaign. Didn’t he endorse Perry?
Buy Danish on January 18, 2012 at 5:10 PM
Steal Paul voters? Hahahahaha good one.
Ortzinator on January 18, 2012 at 5:14 PM
Newt tried this with Cainiacs, didn’t he?
I won’t used the word I’m thinking. It wouldn’t pass the filter.
capitalist piglet on January 18, 2012 at 5:27 PM
You’re Wrong. Inflation refers to the inflated cost of goods and services.
In fact, economic deflation can most certainly exist EVEN IF the currency supply is being increased. Also, economic inflation can most certainly exist even while the currency supply is being decreased.
blink on January 18, 2012 at 5:38 PM
Reread my comment. I said that it was kinda QE.
Again, your original comment made it obvious that you didn’t understand QE. The concept doesn’t apply to an individuals debts.
That being said, increasing a supply of credit can kinda be compared to increasing the supply of money – to the extent that you want to compare an individual’s finances to a government’s monetary supply – something that YOU started. Surely, you wont deny that credit can be used as currency. Have you ever heard of purchasing something by assigning a line-of-credit (this is different than purchasing something by drawing down on a line-of-credit)??
blink on January 18, 2012 at 5:43 PM
This is a silly comment. Only the elected borrowers are capable of changing the lending. Those same borrowers can just as easily pass a balanced-budget amendment. Why do you think that one is any more likely than the other.
But again, the probably isn’t the mechanism by which the federal government borrows – the problem is the federal government’s desire to borrow.
blink on January 18, 2012 at 5:46 PM
Analogy Fail.
It’s better to blame your wife for your credit card debt than trying to abolish the credit card system. Don’t blame the mechanism of borrowing for the borrower’s debt – blame the borrower.
blink on January 18, 2012 at 5:48 PM
That’s the piece that most gold bugs don’t seem to be able to answer. Frankly, I would love to see us return to the gold standard. As a long-term solution to one of the major monetary issues that plague this country–inflation via fiat–it would work. But getting from here to there requires an enormous amount of work, to solve systemic problems that most gold-standard supporters gloss over in their cheerleading.
If we could resolve those systemic issues, then I’d be all for moving back to some sort of hard currency. But just assuming we can institute it now, without establishing a framework, is stupid.
The most immediate problem we would face, for example, would be an immediate inflation of gold prices. Catastrophic. You could tack at least one more zero onto the price, if not two. Yeah, the dollar would stabilize after that, assuming we fixed our other problems. But at what cost? It would essentially be worthless as a currency, by today’s standards.
If someone could lay out a solid plan for fixing the system so that we could move to a gold standard in a relatively painless way, I would love to see it. But I have my doubts. Especially in this political environment. It would take nothing short of authoritarian presidential power to enact, I’m sure.
nukemhill on January 18, 2012 at 5:52 PM
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