Thursday, August 28, 2008

The "stealth" gold standard

Lots of people think we ought to go back on a gold standard because that would limit the government's power to create inflation by debasing the currency.

As uncomplicated a solution as that may sound, there are many pitfalls to a gold standard, like not being able to stimulate in times of recession or worse--depression.

The fact is, in today's modern global economy the notion of going back on a gold standard is dismissed by most economists as not being practical.

But is that how they really think?

Back in 2005 then-Fed Chairman, Alan Greenspan, had an interesting exchange with Representative Ron Paul while testifying on the state of the economy.

Paul asks Greenspan why central banks and governments around the world still hold huge amounts of gold if there is no longer a gold standard?

Greenspan's answer is instructive.

"...since the late '70s, central bankers generally have behaved as though we were on the gold standard. So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard? And the answer is: I don't think so, because we're acting as though we were there."

The world may not be on a gold standard, but central banks are still acting as if we are!

That entire exchange can be found at the link below:

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