Gold Standard Increasing in popularity

Last year Robert Zoellick, the head of the World Bank, suggested that countries consider a return to some form of a gold standard.  He said that “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

Within 24 hours, Zoellick's comments were attacked by many economists arguing for the status quo.  This lead Zoellick to distance himself from his previous comments about the gold standard a few days later.

2 months ago however, Steve Forbes predicted that the United States would return to a gold standard within the next 5 years.  He stated that "people know that something is wrong with the dollar" and that "you cannot trash your money without repercussions."

Furthermore, Utah recently passed legislation to recognize gold coins as currency.  Legislation has been introduced in the U.S. Senate to recognize gold coins as currency as well.  Additionally, today the Telegraph reported that "step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation"

It seems that, although slowly, the world is coming around to the idea that a fiat currency is not the answer.  The momentum is moving in our direction.  Let's just hope we educate our fellow citizens, of the importance of backing our money with assets, before it's too late.

President of the World Bank, Robert Zoellick proposes debate over the Gold Standard

From Financial Times:

Mr Zoellick, a former US Treasury official, calls for a system that “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account”. He adds: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

His views reflect disquiet with the international system, where persistent Chinese intervention to hold down the renminbi is blamed by the US and others for contributing to global current account imbalances and creating capital markets distortions.

Krugman Responds:

So Robert Zoellick wants us to return to return to a modified gold standard. Brad DeLong pronounces him the stupidest man alive; that’s much too kind.

David Frum's Critique Is Far From Sound

In his weekly CNN column, David Frum argues that "Ron Paul's money plan is far from golden," but makes a lot of mistakes in his analysis.

He uses the same tired, old, and refuted Keynesian argument that a free monetary system based on gold currency is too inflexible. He argues the Great Depression happened because the gold standard prevented the government from being able to expand the monetary supply to get us out of the economic recession.

His prescription for avoiding the Great Depression is the Keynesian idea that the Federal Reserve should print up money out of nothing to extend credit to the government (by purchasing Treasury bonds), and that the government could then ramp up spending to stimulate the economy. Frum argues that this could not occur in 1929 because of the gold standard, and the economic contraction slipped into a full-blown depression without government stimulus.

Frum believes, like the defunct Keynes, that a government-sponsored central banking system can ease busts by expanding the money supply, and then take the excess money back out during booms when the growing economy can safely absorb the monetary contraction. This necessarily assumes that you won't have high inflation during an economic recession.

Two wrongs make a right.

The economy. Ron Paul knew it was in trouble years ago, and now everyone else knows it. We are in what the government-sponsered economists call a "long recession" but what us buzzkills (or realists) call a depression.

Driving to school yesterday we were listening to an NPR talk show where the guests were talking about our economic situation. They were saying how important it is for us to keep giving out welfare so that "the unemployed will be out there spending." They were also talking about how we need jobs.

These two seem mutually exlusive. I asked my 8 year old brother, if given the choice would he prefer not to work and recieve government money or work and be taxed. He said he would prefer not to have a job because he could stay at home and watch TV. If my little brother can see it why can't the guys who went to Harvard for economics?