Would Romney Take a Shot at the Gold Standard?

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Perhaps the biggest news out of the Republican National Convention is already been reported and the convention hasn’t even begun yet.  There are still two days before the convention begins, but there is one new proposal in particular to the Republican Party Platform that is a game-changer.

Of course, I’m talking about the idea of the US returning to the gold standard.  There is a real, if not large, possibility of this idea becoming part of the debate about how to fix our economy and save our currency.

Is this a good idea?  Maybe so…

Going back ain’t easy

It depends upon how it would be accomplished.  It wouldn’t be easy.  Life as we know it would be radically changed.  Social programs and government would undergo major cuts.  Real cuts. Many federal workers would be out of work.

And pricing gold in dollars would be tricky.  Too low and our gold reserves would soon be exhausted.  Too high, and gold flood would flood into the treasury in exchange for large amounts of dollars, causing inflation.  And there are other difficulties as well; too many, in fact, to list here.  But it’s probably worth doing.

Statists hate gold

Remember, why we left the gold standard?  It was because our economy was not producing enough growth that could be taxed high enough to pay for the welfare state, the defense budget, and the costs of American hegemony around the world.  The US government did not have enough gold to support the level of debt that it needed to issue and sell to the world in order to do all the things that the state wanted to do.  That’s why statists hate gold…except when it’s in their hands.

Long story short, the Great Society and the Vietnam War of the 1960’s was the beginning of these spending-versus-revenue pressures.  The US had already shifted to a partial gold standard by then; but by 1971, president Nixon made the sudden announcement that the US dollar would no longer be convertible into gold at any ratio.

Leaving gold leaves us poor

The result of taking the dollar off the gold standard was an expansion of US national debt and a concurrent expansion of the reach and power of the federal government.  It grew in size immediately thereafter and has never stopped.   Every year, federal budgets were increased well beyond tax revenues.  To make up the difference, the government raised taxes on Americans and issued more debt—T-bills—to other nations.  Every year, spending power of the dollar declined, as has our wealth.

Deficit spending along with tax rates and federal debt to pay for it, exploded.  It should be no surprise that ten years later, Ronald Reagan, in his campaign for president, called for a reduction in government programs and spending.  To fulfill his campaign promise, president Reagan initiated the “Gold Commission” when he first took office to explore a return of the US dollar to the gold standard.

Why did he do this?  Because Reagan understood that in order to have a gold-backed currency work, the government must exercise fiscal discipline, since by its very definition, with a limited supply of gold, there would be a limit on how much money could be in circulation at any one time, even with fractional reserve banking practices still in place.  The gold standard, Reagan understood, was a way to limit the power and growth of government, and to restore integrity to the US dollar.

Reagan understood the benefits of the gold standard and he also knew that it would be a direct assault the power of the Federal Reserve.  Without the gold standard, the Fed is free to create as many dollars as it pleases, without regard to the damage it does to both our currency and to the country.

Former Federal Reserve Chairman Alan Greenspan knows this as well.  In his 1966 paper, Gold and Economic Freedom, he wrote:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

So what happened to Reagan’s Gold Commission?  After taking an assassin’s bullet to chest, Reagan barely survived, but the Gold Commission did not. Shortly thereafter, the Commission found that the current system was better left in place and was de-commissioned.

The way forward?

Fast forward to today, and anyone can see that there are major problems ahead of us with our trillions of excess debt with no way to pay it back without major inflation or other economic calamities. To stay on the same path we’re on will mean a loss of reserve currency for the dollar and a great weakening of the US economy.  But can we ever safely go back to a gold standard?

Greenspan thinks we can, but gradually, not all at once, but that it would be to our great advantage over the long run.  One wonders why he didn’t initiate the process when he ran the Federal Reserve.  Or maybe, Reagan’s experience tempered any such inclinations.

On the other hand, Ben Bernanke thinks that the gold standard is not the way to go. The Wall Street Journal reported today that...

Federal Reserve Chairman Ben Bernanke has warned frequently of the perils of the gold standard, in which the dollar is valued at a fixed price per unit of gold. In the 1800s, for example, the U.S. was prone to frequent booms and busts (my italics)in part because the gold standard left no discretion in the banking system over interest rates or the money supply, Mr. Bernanke said this spring during a lecture at George Washington University.

So, Mr. Bernanke is afraid the US economy might be “prone to frequent booms and busts?”  And just what, pray tell, have we been experiencing the past 12 years, if not booms and busts in the dotcoms, real estate and others?

But whether we go back to the gold standard or not, I propose that we decide, as a nation, not to honor our “debt” to the Federal Reserve.  I suggest that all of it be declared null and void and kick the Fed out of the country.

And our foreign debt?  Discount the hell out of it.  Call it the hegemony discount; a payback from those who benefitted from the US keeping the world together—more or less—the past 60 years or so.  And then cut the welfare state by two-thirds in 5 years and lower taxes to 10%.

Sounds radical, no?  It is radical, but not in the meaning that you think.  Radical relates to roots. What I’m saying comes directly from the roots of the founding of the country.  Radical?  Yes. But, since I’m not on the ballot this year, it’s easy for me to say, isn’t it?

However, Romney is on the ballot this year.  If he is elected president of the United States, he may have to think long and hard to decide if pursuing the gold standard for the good of the country is worth a shot.

And those are…The Gorrie Details.

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One Comment

1. 

   Surfer dude

   August 25, 2012 at 12:04 am

   Aloha James! You might not know this? But a few days before KENNEDY left for DALLAS,he signed an EXECUTIVE Order,which would have transferred the ABILITY to PRINT MONEY to the TREASURY Department> INTERESTING Huh? lol Think I am kidding GOOGLE it! aloha friend

   Reply