REVERTING TO THE GOLD STANDARD
Some folks down Texas way have described Rep. Ron Paul as “all hat and no cattle.” Big ideas which never gain popularity. But, the GOP cast some sunshine on his latest move.
Following the Republican convention and its platform, which includes Paul’s recommendation that a commission study a return to the gold standard, two redneck clichés also apply: Some of his dogs don’t hunt. Some of his dogs don’t bark. In this case, there wasn’t enough barking to ward off the threat of a dog that could bite the US economy in the ass. There have been attempts in the past, and we can only hope that a thoughtful Congress will determine that this proposal is a dog that won’t hunt.
Addressing the question columnist Robert J Samuelson wrote:
“There is always a well-known solution to every human problem – neat, plausible and wrong.” – H.L. Mencken, 1920
“The gold standard is one of these “solutions.” Let the economy turn ugly, and we soon hear that the gold standard can save us from ruin. Rep. Ron Paul of Texas is the gold standard’s loudest champion, and it is probably as a sop to him and his followers that the Republican platform recommends that its revival be studied. Don’t be fooled: The gold standard isn’t coming back; its return would be a calamity.
“It’s hard to say what “returning to the gold standard” would mean today. Even true believers cannot think that, in the age of electronic money and plastic cards, we’ll revert to an all gold-coin economy. Any new gold standard would involve metallic backing for money. But how much? As Eichengreen has noted in The National Interest, setting the dollars-to-gold conversion price too high would be inflationary – unleashing a flood tide of money. Setting it too low would restrict the supply of dollars and risk repeating the Depression’s crushing deflation.
“The arithmetic would be daunting, writes Julian Jessop of Capital Economics to clients. The United States holds gold reserves of 261 million ounces, the world’s largest. The monetary base – cash in circulation plus banks’ deposits at the Federal Reserve – is nearly $2.7 trillion. Backing all that money with gold would require a gold price of about $10,000 an ounce compared with today’s price of roughly $1,600. This sort of change would rattle global financial markets.
“It’s hard to imagine a more sure-fire way of creating uncertainty and destroying confidence. If evidence of an incipient surge of inflation were obvious, gold’s appeal might be somewhat understandable. But there’s no such evidence. In 1980, there was a similar clamor for restoring gold’s old role. A presidential commission was appointed – and recommended against it. History may repeat itself: A new gold standard would be so impractical that it could not overcome its own contradictions,” Samuelson concluded..
Spy note: a revival of the gold standard is not the only oar Paul stuck on the GOP pond. According to Samuelson, Paul also favors a proposal by Austrian Friedrich Hayek, for a system of private coinage and currency that would compete with government-issued money.
PERSONAL EXPERIENCES WITH THE GOLD STANDARD
In 1965, while still a national political reporter, I was interviewing President Johnson in the Oval Office on his re-election and his plans for ending the war in Vietnam, enforcing the Civil Rights Act, and other major topics of the day.
The interview was interrupted when aide Marvin Watson rushed in with an Associated Press story that French president de Gaulle was demanding that the United States honor the Gold standard through which every US dollar in circulation was backed by gold, at a rate of $35 an ounce. Thanks to US aid to rebuild Europe, US investments in France, DeGaulle had a stockpile of US paper currency.
Johnson blew a fuse. He summoned Rep. Joe Resnick who was in the next room, and began working the phones to the Hill. He wanted members on the floor immediately denouncing “that frog Bastard,” one of the kinder appellations. LBJ assured the French ambassador that all manner of non-heavenly events would occur, and received assurances that de Gaulle would be told that LBJ had no intention of letting that XX##XX raid Fort Knox.
When the smoke cleared, everyone was ushered out of the Oval Office. I was last to leave; Watson stopped me and asked if I had been there for the whole episode. Yes. When I returned to UPI offices in the National Press building, I had an urgent phone call from Merriman Smith, dean of the White House press corps, so well remembered for his first-hand coverage of the events in Dallas in November 1963. Smith told me that the President could declare any conversation in the Oval Office to be off the record, even after the fact. “You can’t use the story,” Smith said, then he added, “but tell me what LBJ said.”
In 1971, I was a member of the US delegation to the United Nations meeting in Geneva. The proceedings were interrupted when the chair announced that President Nixon had taken the US off the gold standard. Delegates swarmed to the basement of the Palais de Nacions where the bourse was being overwhelmed by delegates buying hard currencies, especially Swiss francs. On a board behind the cashiers, the dollar was falling – rapidly. I jokingly asked Vassily Venediktov, a Russian delegate, with whom I had an acquaintance, if he was trading rubles for francs. Of course not; the ruble was not a convertible currency, but I was amused to see that the Soviets were holding dollars, unofficially of course. I had some Swiss and French francs, and German deutschemarks but not enough for my hotel bill and expenses. The concierge at Intercontinental was not joking when he demanded payment on check out in Swiss francs. I was even more unhappy when I returned home and was told the State Department was holding to its fixed per diem, in dollars, which of course left a I big hole in my personal economy. Because I had other business after Geneva, my shortfall was $1500. I tried for 28 years to recoup, always unsuccessful.