According to Steve Forbes, low interest rates and extremely accommodative monetary policy will leave the US with no choice but to return to a modernized version of the gold standard. In the coming election however, gold will likely take a back seat to jobs, Middle East tensions and entitlement.
By Forrest Jones
Thursday, 06 Sep 2012 10:36 AM
Low interest rates and extremely accommodative monetary policies will leave the country with no choice but to return to a modern version of the gold standard, said publisher and one-time GOP presidential hopeful Steve Forbes.
The GOP platform has called for a commission to study the feasibility of the gold standard, which attaches the value of the dollar to a fixed weight of gold.
President Richard Nixon dropped the gold standard in 1971 and opened the era of a fiat dollar. Supporters of the gold standard’s revival say the plan would prevent the government from living outside of its means like it does today.
Gold will likely take a back seat to jobs, Middle East tensions and entitlement and other economic reforms in the upcoming elections.
“But the yellow metal will be a hot topic in the next 24 months. The commission is going to take on an importance that will astound today’s political punditry, besotted as they are with stale Keynesian quackeries about money, taxes and spending,” Forbes wrote in his publication.
“Why? Events economic and political. The ever deepening financial crisis around the world will force the new Romney-Ryan administration to consider — and quickly, too — dramatic measures to deal with the disaster,” Forbes added.
“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.”
Since the downturn, the Fed under Chairman Ben Bernanke has slashed interest rates to near zero and has injected some $2.3 trillion into the economy by purchasing assets such as Treasury holdings or mortgage-backed securities from banks, a monetary policy tool known as quantitative easing that floods the economy with liquidity in way to encourage investing and hiring.
Critics say the move consists merely of printing money out of thin air and has planted the seeds for inflation down the road.
Such policy would be undoable under a gold standard, since the amount of money in circulation is tied to a fixed amount of gold.
“In order to work properly and productively, markets need a reliable pricing mechanism,” Forbes wrote.
“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 percent or a 30-year government bond just under 3 percent?”
Some analysts say calls for a gold standard serve a message the country needs to address much-needed fiscal and monetary reforms.
“Examining a return to the gold standard is one avenue to show the public and markets a level of seriousness about the U.S dollar, monetary policy and the budget deficit,” said Jeffrey Wright, managing director of Global Hunter Securities, according to Reuters.
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