Forbes: “Gold Standard is Coming”
In an article published today at Forbes, Steve Forbes writes of an incoming gold standard, and he maintains that this not merely a “motivation of hard-core political calculators around Governor Romney.” Instead, Forbes cites “Tea Party Groups and Several U.S. senators and representatives, as well as Ron Paul’s devotees” represent more fittingly the reason behind the seemingly sudden gold standard policy debate. An underlying assumption of Forbes entire article is that, not only is a gold standard coming, but so too is a Wall Street backed Romney-Ryan Administration. Forbes does not even mention this assumption, whilst he delves into his reasonings why a gold standard is crucial to the preservation of America, instead he takes it for granted.
Although Forbes says that “gold won’t be sizzling issue this fall,” he goes onto list a number of “sizzling issues” that are by all means bullish for gold, such as the economy, entitlements, and even war in the Middle East. Over the next two years, though, Forbes forecasts that gold will be a “hot topic in the next 24 months.” The commission that is part of the GOP platform to re-evaluate a gold standard “is going to take on an important place that will astound today’s political punditry, besotted as they are with stale Keynesian quackeries about money, taxes and spending.”
The events that will lead to gold at the center-stage of all things political and economic revolve around the deepening financial crisis in the world leading a Romney-Ryan Administration to “consider – and quickly, too-dramatic measures to deal with disaster.” Forbes then goes onto berate the Obama/Bernanke monetary policy:
The Obama/Bernanke Federal Reserve has been an abysmal failure. No major country’s central bank has been so destructive since the Fed in the 1970s; prior to that, nearly a century ago, it was Germany’s central bank, which created a hyperinflation that helped set up an environment for the Nazi revolution.
Like Wall Street seems to be, Forbes is worried about a runaway state overtaking the private sector. With a gold standard, the state’s ability to control monetary policy will fade, leaving the door wide-open for big business to domineer the global economy as benevolent stewards progressing us all towards Utopia. For that reason, Forbes maintains, the gold commission will be “critical.”
Under a properly functioning gold standard the Fed’s penchant for rigging interest rates would be sharply curbed, if not eliminated. For instance, let’s say gold was pegged at $1,500 an ounce. If it went above that level our central bank would remove excess money from the markets by selling bonds from its portfolio; if it went below that peg then the Fed would buy bonds to meet the market’s legitimate demands for money. Setting interest rates would no longer work; the Fed would have to let them float.
Unlike other central bank catastrophes this one, so far, is of a slow-motion variety, which is disguising the immensity of the harm being done.
For the first time in our history our credit markets have been rendered incapable of providing sufficient capital for small- and medium-size businesses, while starving startups and would-be startups of the wherewithal to grow to their full potential.
In order to work properly and productively markets need a reliable pricing mechanism. By manipulating interest rates on such an unprecedented scale the Federal Reserve has effectively destroyed the ability of our credit markets to genuinely price the borrowing and lending of money. Does anyone really believe a 10-year Treasury should yield little more than 1.5% or a 30-year government bond just under 3%?
This point is critical: The Fed’s forced suppression of organic interest rates has made the pricing of credit impossible to figure. And guess what? If you can’t determine the real prices of products and services, you get less–or none–of them. It’s Soviet-style economics.
Say we had market-determined interest rates again. Banks might then have to pay 3% or more on your deposits. Unable to get virtually free money, banks would more actively seek customers for loans. And regulators, who in their current bout of unreasonableness have also suppressed lending impulses, would be more vigorously resisted.
The $16 trillion given to international banks could not be re-issued in the form of credit or small-to-medium sized businesses, because then the international banks would be aiding competition and draining their precious booty. Instead, a fixed monetary supply bringing on a deflationary cycle sure enough to hammer the average citizen in the United States into an inflationary debt hell-hole will be better to promote growth and a healthier economy. In other words, we cannot let the debt of average citizens, a teet of which the monied expect their children to live from, inflate. It must deflate and so therefore be worth more. More products, more products, more products, less money, less money, less money. While it sounds like sound economics, the truth of a Romney-Ryan backed gold standard means little in the way of investment by the job creators and more investment by the privileged for themselves.
If, under a gold standard, banks were forced to be more competitive in the pursuit of profits, what sort of pursuits would these entail? Trafficking drugs is a much easier way to make money than is investing in a new startup of someone directly out of college. Big banks are not interdependent with family businesses these days. They are interdependent with other crime rings. State-sanctioned economic growth via policy will only lead to a growth in corruption. Something more than a fixed or unfixed money supply has got to change for their to be true re-direction towards true free markets.
Not a gold standard, but a free standard. Currencies of all forms must be allowed to float alongside one another, as individual choice gives them or strips them of their perceived value. At my local store, I might want to use silver, and they might accept it. Or, the store might not, even though I still choose to be the Silver Vigilante. I will then be required to have exposure to more than just my medium of exchange of choice, and the clicking-and-clanging of these transactions will depend on the mood of a people, the time and place. Whether this be fiat paper or a digital currency, it might not matter. The amount of competing exchange mediums will be tempered by just how free the economic environment is. The freer, the more competition. The less free, the closer we end up to a state-sanction Whatever Standard – bad money driving out bad money, repeat.