Angling for Votes

In an attempt to take the wind out of the sails of Ron Paul supporters and fish for their votes, Mitt Romney has become a vocal critic of Ben Bernanke and the Fed, with the latest idea being floated that the GOP is thinking of a 'return to the gold standard'. Yeah, right. And we have a certain bridge in Brooklyn for sale.

Anyway, the idea has immediately led to a manning of the anti-gold barricades by a broad swathe of statists and people who simply don't know any better. After decades of statist propaganda and outright lies about the alleged necessity of a fast growing money supply and the 'beneficial effects' of maintaining a centrally planned money system which lowers the purchasing power of money at a steady rate to the advantage of bankers and the detriment of savers, a depressingly large number of people have become convinced that it is all for the best.


Never mind that the central planners have brought us such lovely events as the Great Depression, the secular inflationary contraction of the 1970's, the tech boom-bust and most recently the 'biggest financial and economic crisis since the depression'. If their 'flexible currency' and their interest rate fixing are so great, then why did we suffer several of the biggest economic catastrophes in all of history under their watch?

 

 

 

 

 

 

 


 

One glance usually suffices to realize deep down that this would be our money in the absence of legal tender laws.

(Photo source unknown – The Web)

 


 

Press Reports

Readers may want to check out the following articles, in which many of the same tired and frankly totally lame and economically illiterate arguments against gold are rehashed all over again:

 

1. “Republicans Eye Return to the Gold Standard” (this article originally appeared in the FT, this is the CNBC reprint which isn't blocked by a pay-wall). You can usually always rely on the editors and writers of the pink paper to come down on the side of statism and interventionism. That's just how it is. Their chief economics writer after all frequently admonishes central banks to print more money. This article has generally a neutral tone however, but it still provides the belly laugh of the week via its closing sentence: “A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time”.

2. “Reviving the Gold Standard Studied in Republican Platform” at Bloomberg/Business Week talks a bit about the effect the initiative has on 'Tea Party' supporters and Ron Paul supporters. As noted above, they seem to be the main target of this propaganda exercise.

3. “Romney, the Republicans, and the gold standard” from the AEI actually adopts a sympathetic tone at first, only to conclude 'it's a bad idea anyway'. Instead of hewing to George Bernard Shaw's famous advice “You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect to these gentlemen, I advise you to vote for gold.”, the author thinks it would be better if the central planners simply adopted a 'better plan' henceforth by modifying the Fed's mandate. Central planning of money as such should not be abolished. Otherwise, how would we be able to suffer through the titillation of major economic crises? At least he makes the honest assessment that “I seriously doubt whether any Team Romney economists think a gold standard to be a good idea.

4. “The GOP has picked the wrong time to rediscover gold” writes lefty Ezra Klein at the Wahsington Post, for whom there will of course never be a 'right time'. Allegedly there is 'no inflation problem' (we're apparently supposed to only consider gold when there is one), never mind that the true money supply TMS-2 has exploded by over 80% since early 2008. Klein cites the Keynesian Barry Eichengreen in support. According to Eichengreen:

 

“But as economist Barry Eichengreen writes, a gold standard would mean ”the Fed would have little ability to act as a lender of last resort to the banking and financial system. The kind of liquidity injections it made to prevent the financial system from collapsing in the autumn of 2008 would become impossible because it could provide additional credit only if it somehow came into possession of additional gold. Given the fragility of banks and financial markets, this would seem a recipe for disaster.”

 

This glosses over the fact that under a gold standard there wouldn't have been a credit bubble of such egregious proportions that the entire financial system ended up on the edge of collapse. To be sure, even under a gold standard is it possible for banks to expand the money supply via fractional reserve banking, to produce booms and busts and to get into trouble. However, one of the main reasons why bankers took the utterly crazy risks they took during the bubble was precisely that they all knew that there was a 'lender of last resort' standing by to bail them all out – a lender with the ability to print unlimted amounts of money at will. We happen to believe that bankers would be a lot more careful absent such an institution.

Anyway, you get the idea: the cognoscenti (none of whom predicted the crisis, but all of whom are regular founts of wisdom when it comes to dispensing advice regarding how to combat it) are of one mind: gold is bad for us.

 

Money Needs to Be Freed from State Control

Now, just to make that clear, we are actually not advocating a gold standard either, at least not one administered by the State. We believe Ron Paul was correct in picking up Hayek's idea of denationalizing money and allowing competing currencies to co-exist. Simply leave it to the market to decide which currencies will flourish. It seems of course extremely likely that precious metals would play a very important role in such a system of competing currencies. However, the decisive point is that money should be returned to the free market instead of being a creature of the State. In the place of today's state-sanctioned banking cartel which is subject to thousands of pages of regulations, we should have free banking subject to market forces.

As to Mr. Romney, we have previously pointed out that there is actually zero difference between his and the current president's political positions (if you don't believe it, check out the video we embedded in „The Choice Amercian Voters Face This Year“. You really don't have to take our word for it – Obama and Romney provide the words all by themselves). On all the major political topics of the day they appear to be reading from exactly the same script. Naturally Romney's campaign is now attempting to differentiate him somehow – otherwise, why would anyone bother to vote for him? The gold standard story is merely the latest attempt to implement that strategy.

As a reminder, Romney once stated that his favorite pick for Federal Reserve chairman would be Harvard economist Gregory Mankiw, a man who openly promoted the monetary crankery of Silvio Gesell in an op-ed in the New York Times in 2009. Bernanke almost appears saintly compared to this crank.

 


 

Mitt Romney captured shortly after his campaign managers told him about the gold standard idea.

(Photo via tumblr.com)

 


 

A slightly dated chart by Casey Research on where the gold price would need to be set to 'back all paper reserves'.  This is the same as the 'shadow gold price', an idea that has been forwarded by QB Partners. The idea is to back the US monetary base with the existing gold reserve held by the treasury. We would certainly not invest based on such estimates, but it cannot hurt to be aware of them – click for better resolution.

 


 

 

 

Charts by: Casey Research


 

 

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7 Responses to “Mitt Romney’s Fake Gold Standard Initiative”

  • Keith Weiner:

    Pater: I agree that the likely Republican gold plan will not be a move towards the unadulterated gold standard. But I think it is telling that they felt the need to address the rising concern about the dollar and discussion of gold. In fact, I think it is a sea change.

    Mankiw is an evil man. To propose negative interest rates is bad enough, but on top of it to propose to destroy 1 in 10 paper dollar bills as a way to make people “delighted” to lend at negative 3% is simply vicious.

  • JasonEmery:

    Good analysis Pater. Let the market decide what is money and what isn’t. Make the mint a quasi public institution, like the post office. Or better yet, get out of the minting process entirely, and let the private sector be in charge of weighing gold and silver and verifying purity.

    It is starting to look like silver is going to make a monster run here. It has outperformed gold 5 days in a row, and today could make 6. Due to the incredible success of their silver price suppression scheme, silver was held below cost of production for so long, that above ground stocks that normally would not have been depleted, were depleted.

    The gold:silver ratio had an interim top of 60:1 a couple of weeks ago. If gold:silver goes to 10:1, as many expect, that would be 500% out performance of the white metal over the yellow one. Don’t get me wrong, I like gold, but you pretty much have to be overweight silver here, I think.

    I know that Ron Paul is one of the few that actually believes the USA Constitution has any meaning, but I believe it states that a ‘dollar’ is a specific weight of silver. Silver is real money. I think there is a place for gold too, but it will be secondary, I’m guessing. Maybe a bi-metal standard.

    • worldend666:

      You haven’t said why you think Silver would be the main actor in backed money Jason. Really I cannot think of any. The supply and the stock is unstable, the price is volatile, it is consumed in large quantities by industry adding to the volatility of the stock. A large amount remains in the ground meaning inflation is likely. Additionally the amount of investment silver around today is tiny and would be insufficient to back any big currency, and as far as I know no central banks hold it in significant quantity.

      Gold doesn’t face any of these problems as far as I am aware. Now don’t get me wrong – I own some silver and I like to play in the casino but I just can’t see how central banks could take it seriously.

      • JasonEmery:

        My guess is that most nations with a lot of silver production, such as the world’s 2nd largest, China, will adopt silver as money. If other nations adopt gold, which is likely, then a gold:silver exchange mechanism will develop in due course. The USA also produces a fair amount of silver too.

        It is my opinion that the USA government has no gold at all, in physical form, or only a tiny fraction of the stated amount. It is my understanding that subtle word changes in how the US Treasury describes its gold holdings were done for a reason, and not for the linguistic purity of the report writers.

        The idea that silver is an industrial metal is misleading. The correct way to phrase the sentence is ‘As long as silver continues to be demonetized, some of it will be consumed by industrial purposes.’ As soon as silver is re-monetized, industrial use will cease, and manufacturers will use the next best metal for their particular application.

        Over the last 10 years the single biggest use for silver has gradually vanished, silver nitrite in old fashioned photography, due the almost complete market saturation of digital photography. If your ‘industry’ theory had any validity, silver would have been dropping in price, rapidly, over the last decade. Instead, it has gone up faster than almost anything else.

        • worldend666:

          I don’t want to get into a silver vs. Gold debate as I have seen over on Tfmetalsreport.com how heated that can get. It’s amazing how religious investors can get about their product of choice. Personally speaking, I can say I have made enough mistakes in life to never be sure about anything :)

          • JasonEmery:

            world–I hope I didn’t come across as being ‘certain’ that silver would triumph over gold, as a new monetary regime emerges. I’m content to allow the market to decide, being a holder of a diverse portfolio of tangible assets.

            The point I was trying to make in the first post in this sequence is that the consequences of being underweight silver are more devastating than to be underweight gold. The reason for this is that the current gold:silver ratio is far above historical norms, actual annual production ratios, etc.

            This is part of the same argument against suppressing interest rates below the level the market would set. It leads to malinvestment. Likewise, when monetary metal prices are suppressed, you get the bizarre situation where silver is used as if it were a base metal.

            • worldend666:

              I have to confess that I err on the side of gold mainly because of the excellent arguments made by FOFOA.

              If there were to be a bi-metallic standard, it could possibly be with silver being used in coinage and gold being used to back notes, however as I understand it there is very little silver about and this fact could foil the use of silver cor such a purpose. Of course I will be glad to stand corrected :)

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