Friday, August 24, 2012

Republicans Consider Returning To Gold Standard

Stranger than fiction perhaps but FT is reporting that the gold standard has returned to mainstream US politics for the first time in 30 years with a ‘gold commission’ set to become part of official Republican party policy.

Republicans Consider Gold Standard
While this could simply be a reach for as many Ron Paul marginal voters as possible (with the view that the GOP would never really go for it); it appears drafts of the party platform from the forthcoming rain-soaked convention call for an audit of the Fed and a commission to look at restoring the

link between the dollar and gold. The FT, citing a spokesperson, adds that “There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” but “We’re not going to go from a standing start to the gold standard,” although it would provide a chance to educate politicians and the public about the merits of a return to gold. Interestingly, the Republican platform in 1980 referred to “restoration of a dependable monetary standard”, while the 1984 platform said that “the gold standard may be a useful mechanism.”

The FT does its best to placate the hysteria and walk it back with:

A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.
But we remind readers of the actual lengths (and volatilities) of economic cycles over time (as per Deutsche’s Jim Reid):
…we think that the three ‘super-cycles’ between 1982-2007 were the exception rather than the norm and existed largely because of a near 30 year secular global decline in inflation that transcended the business cycle.
 …every business cycle threatening incident was dealt with using aggressive intervention. This led to more and more confidence in the ability of the authorities which coupled with lower and lower interest rates increased public and private leverage to previously unthinkable levels.