In a speech this week, Federal Reserve Chief Ben Bernanke laid out a very reasoned argument as to why going back to the Gold standard is a nonstarter.
You can see his full presentation here, but I wanted to direct you to a summary from Business Insider’s Joe Wiesnthal, by way of UBS’s Art Cashin:
• The gold standard requires digging up gold in South Africa and storing it in a basement in New York. (Nonsensical)
• Everyone’s currencies become linked. This causes policy in one country to effect another country (see how U.S. policy is transmitted to China, because of the Yuan/Dollar fix).
• William Jennings Bryan observed that the gold standard causes deflation. His “cross of gold” speech: Because farmers had debts fixed in gold, loss of pricing power in commodities were very damaging.
• Gold standard cause interest rates to rise during downturns and rates to fall during good times — the opposite of what monetary policy should be doing.
• The economy was far more volatile under the gold standard (all the depressions and recessions back in the pre-Fed days).
• The were far more bank runs and closings during the pre-Fed, Gold standard era. Bank failures were all too common.
• The only way the gold standard works is if people are convinced that the central bank ONLY cares about maintaining the gold standard. The moment there’s a hint of another priority (like inflation or unemployment) it falls apart.
• Gold standards leave central banks open to speculative runs, since they don’t hold all the gold.
I am sure none of TBP readers have much to say about either the Fed or a return to a Gold standard…
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.