I consider Jim Grant, main man of Grant's Interest Rate Observer, to be incredibly astute and well-informed on macroeconomic issues. You might find this article he wrote for the WSJ to be informative. If he is suggesting a new gold standard, I think it is out of the question.
online.wsj.com
Gold was the great disciplinarian when it backed currency. We would not have had the Great Repression of 2008/09 if the gold standard were in place. Credit would not have been as loose as it was, deficits would be corrected eventually, etc., as Grant ably points out. After 40 years, though, I think that a new gold standard is regrettably out of the question. It would bankrupt us immediately.
Unfortunately, the lack of a gold standard is gold's Achilles heel, one that greatly concerns me. Unless there is a global consensus that gold is indeed the natural store of value ( I am not sure such a consensus exists), gold won't necessarily protect us against the mistakes of central bankers. Historically, gold has been for millenia the acknowledged natural store of value, but this stopped in 1971. I don't see how we can return to it. Without it, gold can be manipulated as it is a tiny market.
It will serve its purpose in a crisis, and I don't see how a crisis can be avoided given the incredible amounts of debt we have piled on. As it becomes due, interest rates on Treasury instruments will rise, calling into question the soundness of the USD. Gold will be a backstop then, and will also be one when/if inflation becomes the preferred mode of debt destruction. So, yes, gold looks good for when it hits the fan.
I think that the solution to our long time economic woes is a radical one: no longer have the USD be the reserve currency. A reserve currency not backed by gold or something equally worthy is a great thing in the short run, but suicidal in the long term because policymakers will inevitably abuse the privileges it grants to the detriment of the nation whose currency serves as the reserve. The pound sterling is a great example and the USD is following its footsteps. In other words, be careful what you ask for. And don't be a pig when you have something incredibly valuable handed to you.
We have been pigs. |
