Forget Bretton Woods II – we need a gold standard

Seems that what I have said over the years, as well as many others have about fiat money is getting some press…

Too much credit and easy money. Those were the biggest culprits behind this financial crisis. Yet, apallingly, the government’s rescue attempt is built on more credit and even easier money. That’s like giving a procrastinator a deadline extension. By choosing this course, Washington has steered us on to the “road to Weimar” – the road to runaway inflation.

It didn’t have to come to this. And it still doesn’t. But the proper remedy will take tremendous political courage: Bring back the gold standard. That, more than any byzantine regulations that emerge from the Bretton Woods II conference this weekend, would provide stability and safety for nations and individuals around the world.

Sadly, current policy seems to reflect a desire to weaken the dollar as quickly as possible.

The Federal Reserve’s own data tells the story. The headline is the doubling of Federal Reserve credit, the main component of the US monetary base. Since Labor Day 2008, it’s risen from $894 billion to $2.2 trillion.

That’s the greatest monetary expansion in the Fed’s 95-year history. How the Fed is doing it matters almost as much. It has nearly abandoned its traditional instrument for monetary policy, open-market operations, which involves the purchasing and selling of full-faith-and-credit US Treasury securities. With increasing frequency and amounts, it has relied primarily on “discount window operations” – lending to specific institutions for specific purposes instead of general injections of funds into an open market – since August 2007. This shift may weaken its ability to “tighten” monetary conditions should inflation reach dangerous levels.

A gold standard offers exactly the kind of discipline that’s missing from the Fed. But its impact would be wider: Both in substance and in symbolism, gold provides integrity to the entire global financial system. Governments, however, have historically bridled at the constraint and accountability a gold standard brings. After all, when currency can be exchanged for gold, it’s harder for governments to inflate the money supply, which they’re tempted to do in order to spend beyond their means or cheat on their debts.

~snip~ Full story here

Related story from the Wall Street Journal

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2 Responses to “Forget Bretton Woods II – we need a gold standard”

  1. No Compromises Says:

    Hey Patrick,

    I thought I would come on over to check out your blog since you’re fast becoming part of the No Compromise family! Yes, this certainly is a dude’s blog! Well, this Security Sister is glad you came on over and if you want to swap links let me know. See ya on the war front and never surrender!

  2. patricksperry Says:

    I thought I had already added you to the blogroll. Yep, it is mostly targeted at the things that guys like. I also do have a pretty wide female following though. I have a lot going on today, but I intend to call the show if I am able to do so.

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