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 it’s 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 Bernanke’s policies for the ongoing global economic stagnation.
Bell is policy director of the American Principles Project. He served as an issues adviser in Ronald Reagan’s 1976 and 1980 presidential campaigns and was the Republican Party’s nominee for the U.S. Senate in New Jersey in 1978.
Bernanke’s 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. He’s 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 that’s a big threat to the world economy’s 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 ...
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.
http://www.aier.org/research/briefs/975-triffins-dilemma-reserve-currencies-and-gold
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 doesn’t 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.
” 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”
Joseph Schumpeter blamed the massive number of bank failures in the United States on America’s peculiar prohibition of interstate branch banking. Europe by example, and as you point out Canada, had fewer and larger banks which were able to weather the storm better than the large number of small independent banks in the U.S.
“but equally notably the panic of 1873.”
There wasn’t a gold standard in 1873. Resumption was passed in 1874 and didn’t go into effect until 1879.
You’re saying the “conversion price” could be the spot price.
That’s why it’s pretty well unworkable. And that’s even leaving silver, or bimetallism, out of the mix. The Treasury has to have a supply of gold that exceeds demand at a fixed price, that must be higher than the market price. Otherwise, one merely exchanges paper notes for gold coin of the same value, and sell the metal for scrap. Rinse, lather, repeat. This arbitrage is exactly the reason today it is unlawful to scrap copper pennies.
“Since money (Federal Reserve Notes) are borrowed into existance they actually represent debt.”
They are monetized Treasury debt.
“The debt is collateralized with...what?”
The ability of the Treasury department to collect taxes.
There is no arbitrage opportunity if the conversion price is set at the current spot price.
Right; multi-regional banks are diversified against hardships in a particular region. Also, larger banks have a deeper capital reserve to draw upon.
“Think about that. Does that sound even remotely legal to you?”
Why do you suppose there was no successful court challenge? It may have been immoral, but it was legal:
“The Gold Clause Cases. All three cases were announced on February 18, 1935, and all in favor of the government’s position by a 5–4 majority. Chief Justice Charles Evans Hughes wrote the opinion for each case, finding the government’s power to regulate money a plenary power. As such, the abrogation of contractual gold clauses, both public and private, were within the reach of congressional authority when such clauses presented a threat to Congress’s control of the monetary system. Of note was Hughes’s opinion in the Perry case: in a judicial tongue-lashing not seen since Marbury v. Madison, Hughes chided Congress for its immoral—though legal—act. However, Hughes ultimately found the plaintiff had no cause of action, and thus no standing to sue the government.”
“Yes, he raised the price from 20.67 to 35, netting the government a tidy profit.”
The point wasn’t to net the government a profit. The money supply had shrunk by 30% from 1930-33. The idea, whether valid or not, was to increase the monetary base by 30%.
You must have missed my question - given the framers disastrous experience with paper currencies fresh in their minds when they wrote the constitution and bill of rights, the legislation requiring gold and silver to be the only lawful money, etc., &c, don’t you think it a bit queer that Roosevelt got away with that? Ten or twenty years ago my answer might have been different, but recent events have shown to me that “printing press” money is just a disaster, every time. It might take a while, but that’s part of the problem. Now maybe basing a monetary system on a shiny rock isn’t the modern answer, but a credible unit of account is the idea.
The President issues an XO requiring everyone to turn in their money, or go to jail, and get pieces of paper in return. Note this is after/while banks are failing. People have lost everything - their jobs, their investments, and their savings in many cases.
And to top it off, you think the courts opinion squares with contract law? Given the number of XOs around that time period and some of the conflicting directives, it’s pretty clear they knew that what they were doing wasn’t legal. I’m just sayin’.
With all that said, if the goal was simply to expand the money supply, why didn’t the President decriminalize gold and allow it to circulate? For my part, there may be good reasons to do, or not do, certain things but why the secrecy and pseudo-legal mumbo jumbo?
You still haven’t answered my question - I’m aware the courts said stealing peoples money was OK. Turn in your gold or else. Under threat of a $10,000 fine. That’s $700,000 in todays dollars.
No, I asked you if that sounds legal, in keeping with the plain language of the constitution, as well as the framers warnings about paper currencies, not to mention the prohibition of American citizens owning gold not ended until 1974, decades after the money supply had expanded.
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