Should the U.S. return to the gold standard? It’s a question that has taken on new relevance during a time of soaring deficits and sky-high national debt. The recovery has sputtered out and the printing presses are being oiled again.
Brinkmanship between the Congress and the White House over the US debt ceiling has compelled Moody’s to warn of a “very small but rising risk” that the world’s paramount power may default within two weeks. “The unthinkable is now thinkable,” said Ross Norman, director of thebulliondesk.com.
Steve Forbes, Republican candidate in the U.S. Presidential primaries in 1996, in the interview with Human Events in May admitted that the return of gold standart in the USA is possible: “What seems astonishing today could become conventional wisdom in a short period of time.”
The media mogul and former presidential candidate stated that return to the gold standard would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending.
Forbes added that the United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now.
Forbes told Human Events that in case the gold standart was accepted few years earlier, the value of the U.S. dollar would not have weakened as it happens today and excessive federal spending would have been curbed. The constantly changing value of the U.S. dollar leads to marketplace uncertainty and consequently spurs speculation in commodity investing as a hedge against inflation.
The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.). But the idea “makes too much sense” not to gain popularity as the U.S. economy struggles to create jobs, recover from a housing bubble induced by the Federal Reserve’s easy-money policies, stop rising gasoline prices, and restore fiscal responsibility to U.S. government’s budget, Forbes insisted.
As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. The spot price surged to an all-time high of $1,594 an ounce in London. The eurozone debt crisis has spread to such countries as Spain and Italy. They are too big to save, though RBS thinks a €3.5 trillion rescue fund would ensure survival of Europe’s currency union.
The printing presses are being oiled again. Congress and the White House’s collision in the issue of the US debt ceiling has compelled Moody’s to warn of a “very small but rising risk” that the world’s paramount power may default within two weeks. Ross Norman, director of thebulliondesk.com. commented:”The unthinkable is now thinkable.”
Ben Bernanke, fed chair, confessed to Congress that growth has failed to gain traction. He said:”Deflationary risks might re-emerge, implying a need for additional policy support.” The bar to QE3 – yet more bond purchases – is even lower than markets had thought. The new intake of hard-money men on the voting committee has not shifted Fed thinking, despite global anger at dollar debasement under QE2.
Peter Hambro, chairman of Britain’s biggest pure gold listing Petropavlovsk, stated: “It is very scary: the flight to gold is accelerating at a faster and faster speed.” He added: “One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money.”
Neil Mellor from BNY Mellon stated: “There is no depth of market in these other currencies, so gold is the obvious play.” Western central banks sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the prize for selling into the bottom at €254 an ounce on Gordon Brown’s orders in 1999.
China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China’s Chamber of Commerce said this should be raised eightfold to 8,000 tonnes.
The world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick stated it was time to “consider employing gold as an international reference point.”
The Swiss parliament is to hold hearings on a parallel “Gold Franc”. Utah has recognised gold as legal tender for tax payments. A new Gold Standard would possibly be based on a variant of the ‘Bancor’. It was proposed by Keynes in the late 1940s.
This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China’s central bank chief Zhou Xiaochuan two years ago as a way of curbing the “credit-based” excess.
China, Russia, Brazil, India, the Mid-East petro-powers have diversified $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe’s monetary union faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada’s loonie, the Aussie, and Korea’s won are too small. [via The Telegraph (UK) and Human Events]