The Gold Standard

“The silver and gold belong to Me—the declaration of the LORD of hosts.” Haggai 2:8

“Dishonest scales [e.g., fiat money] are detestable to the Lord.” Proverbs 11:1

“Honest balances and scales are the Lord’s; all the weights in the bag are His concern.”  Proverbs 16:11

“Silver is tested in a crucible, gold in a smelter.”  Proverbs 27:21

“She sees that her profits are good and her lamp never goes out at night…her hand reaches out to the poor and she extends her hands to the needy.”  Proverbs 31:18, 19

“Alan Greenspan was famously against paper money that was not back by gold when he was a libertarian intellectual.  When he became a government functionary, his views conveniently changed.  He came to believe what he had to believe in order to be the head of the American empire’s central bank:  the Federal Reserve.  The empire needs almost unlimited amounts of credit to carry out its foreign wars, while making bread and circuses available at home.  Alan Greenspan makes sure it gets it.”  Bill Bonner and Addison Wiggin, Empire of Debt:  The Rise of an Epic Financial Crisis, p. 15

“Expensive foreign wars, expensive bread, expensive circuses—these are, of course, what bankrupted almost every empire from Rome to London.”  Ibid.

“We have also heard the expression, ‘not worth a Continental,’ referring to America’s paper money during the Revolutionary War era.  We have never heard the expression, ‘not worth a Kruggerand.’”  Ibid., p. 327

“Even as money, gold may not be perfect.  But it is better money than anything else.”  Ibid., p. 329

“Pete Peterson attempted to gauge the difficulty of determining the [debt] burden we’ve now place on future generations. ‘Estimates vary,’ Pete Peterson point out in Running On Empty, his vast inquiry into the impending bankruptcy of the U.S. government, ‘depending on methodology, but the numbers are all vast.’  Peterson points to studies done on the future obligations of the Social Security and Medicare trust fund along.  In 2003, the American Enterprise Institute projected a $45 trillion shortfall; $47 trillion countered the International Monetary Fund in 2004; the National Center for Policy analysis and the Brookings Institution came up with $50 trillion and $60 trillion, respectively, in their own research reports published in 2003.”  Ibid., p. 217

“My 9-9-9 tax code replacement plan provoked enormous enthusiasm during my presidential campaign because it represents the largest transfer of power in the history of the republic.  By instituting a 9% income tax, a 9% business tax, and a 9% national retail sales tax—and eliminating most of the remaining tax code (including the many hidden taxes built into the process of doing business)—we would simplify the system for everyone and rob politicians of their ability to use the code to manipulate economic activity.

“But why stop there? Washington thwarts prosperity through more than the tax code.  The present monetary system is an abysmal failure by any objective measure.  As the former chairman of the Federal Reserve Bank of Kansas City, I can say with firsthand experience that it is not the people of the Fed, but the actual structure, that needs reform.  Our liberty and prosperity depend on it.

“Think of economic growth as the result of two gears operating together—low tax rates and sound money.  When both gears are fully engaged, the economy moves forward.  When the gears become disengaged, the middle class suffers.  That’s why, as convinced as I am of the power of the 9-9-9 concept, we need sound money to go with it.

“Article I, Section 8 of the Constitution grants power to Congress ‘to coin Money, [and] regulate the Value thereof.’  But the last 40 years in Washington, regulate has meant manipulate, with the Federal Reserve raising and lowering interest rates and buying and selling assets at its own discretion.  All of this manipulates the value of the dollar.  We regulate time by making sure an hour is always a fixed quantity of minutes and a foot is always a fixed quantity of inches.  The more complex a society, the more it depends on fixed and rigorously reliable standards.  A dollar should be defined—as it was prior to 1971 under the postwar Bretton Woods system—as a fixed quantity of gold.

“However imperfect a gold standard may be, it remains the best among all alternatives.  The empirical data for both the classical gold standard, which I favor—and even the flawed ‘gold-exchange’ standard, as we had under the Bretton Woods system—are impressive.  Economic growth was stronger, unemployment rates lower, the price level more stable, and recessions less frequent and less severe than under the present system.

“I realize the Washington establishment goes ballistic at this suggestion.  Gold is kryptonite to big-spending politicians.  It is to the moochers and looters in government what sunlight and garlic are to vampires.  The American people are another story.  Nearly half (44%) support a return to a gold standard, according to an October 2011 Rasmussen Report.  That support soars to 57% when respondents know it will ‘dramatically reduce the powers of bankers and the political class to steer the economy.’

“Now the political center is moving.  Gov. Mitt Romney, who has my full and enthusiastic support as the GOP’s presidential nominee, has said on record he is ‘happy to look at a whole range of ideas on how to have greater stability in our currency and in our monetary policy.’  His leading economic adviser, R. Glenn Hubbard, has devoted much of his recent book, Seeds of Destruction,’ to rules-based monetary reform.

“In Congress, Rep. Kevin Brady (R., Texas) recently introduced the Sound Dollar Acts of 2012, and Sen. Mike Lee (R., Utah) introduced its Senate counterpart, the Federal Reserve Modernization Act.  While each bill stops short of the real thing, which is a return to the gold standard, they are major first steps.

“The political establishment will fight this idea viciously, because gold convertibility strips them of power and places the trump card over monetary policy with the people.  If you thought the establishment attacked me over 9-9-9, wait until you see how they react to a classic gold standard.  The vampires will be out in full force.

“The debate over sound money has moved from whether we need it to how we get there.  The pieces are moving in the right direction, and we have an opportunity to make the dollar once again as good as gold.  Limiting Washington’s power is a winner.  Restoring prosperity is unifying.  Joining forces behind bold solutions—engaging both gears of sound economic policy—will restore prosperity for generations to come.”  Herman Cain, The Wall Street Journal, May 14, 2012, p. A15

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