A new gold standard?

Author:  Alasdair Macleod via GoldMoney

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The US Republican Party recently announced its intention to set up a “gold commission”, to examine the feasibility or not of returning to a gold standard. This raises important questions, cutting across the neoclassical economic consensus, so is bound to be controversial. If the commission is appointed, its members will have to re-learn how gold works as money, take on board the consequences of its reintroduction, and understand the reasons why mixing un-backed paper and gold is a flawed compromise.

Gold as money is fundamentally different from the paper-money environment we operate in today. Gold cannot be manipulated by government, while fiat money gives governments the flexibility in monetary policy they are accustomed to. To ditch flexibility for inflexibility is hard to justify, whatever the economic case. To do away with the option of easy money will also make many businesses judged to be not over-geared in a flexible monetary environment potentially insolvent.

For this reason, it is likely that any proposal for a gold standard is unlikely to go the whole hog. There is also the question of how much gold the central banks actually own, given decades of denying its monetary role, and of intervention by releasing bullion to discourage any thoughts that it is money.The road to hell is paved with good intentions. The reality is that any attempt to go back to a gold standard is an uncomfortable rewinding of the clock. This is not to decry the benefits of sound money: if we had stuck to sound money in the first place we would not be facing the economic crisis we have today.

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  1. #1 by carmenalexe on September 17, 2012 - 3:59 pm

    I can relate to what you’re saying xizagone. Yet the article is clear to me, it’s all smoke and mirrors. Politicians, govt, and overall the establishment won’t allow a real gold standard to be in place. Republican party brought it up to make them look to the gullible voters like they are endorsing sound money. Smoke and mirrors…

  2. #2 by xizangone on September 17, 2012 - 3:52 pm

    The Banksters will fight a gold/silver standard or currency with every bit of might they have. After all, they have become trillionaires by creating imaginary fiat paper money and lending it together with interest to western governments. If the paper money implodes, all the ultra-wealthy will have will be IOUs from all the major governments in the world, several sprawling estates, ocean-liner sized yachts, and probably their own piles of gold and silver stashed away outside their home countries.

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