GOP go for gold bullion
Jan Skoyles assesses recent Republican deliberations on gold bullion and money, as Mitt Romney et al bring gold once more back into the mainstream. Is this a boon for investors who buy gold, or another failed attempt by politicians to grab the nettle and work with, rather than against, gold?
Mitt Romney’s announcement that the GOP draft platform will include a Gold Commission has taken some by surprise, with some major news publications claiming this was the first time gold has returned to the national debate for thirty years.
This isn’t quite true. The most oft cited, mainstream debate prompter came from Robert Zoellick back in 2010 when, in an op-ed piece for the FT, suggested that gold be considered for a role in the monetary system. Not only that, but the entire Republican nomination debacle has seen repeated mention of some sort of role for gold bullion within the monetary system.
Ron Paul on gold bullion
Dr Ron Paul is the most obvious promoter of the gold standard having been a part of the ‘original’ gold commission back in 1981. Gaining a huge amount of support for his Republican nomination, although sadly not enough, was his long standing push for a return to the gold standard.
Newt Gingrich was also quick to jump on Ron Paul’s bandwagon as the GOP candidate race hotted up earlier this year. In January, Bill McGurn, writing in the WSJ, called the gold commission one of the best ideas seen in the campaigns. He called on Newt Gingrich to steal Dr Paul’s idea, which he promptly did.
I could go on, but the gold standard debate has been hotting up for some time now, in fact since 1971. When the world’s most powerful nation, who issue the global reserve currency, sees the issue of sound money and central bank audits become a point for political debate then this is no longer something which can be dismissed as a reworked issue from the past.
Dr Ron Paul has acknowledged that Romney’s move may well be just to appease him. Whatever his motivations, he may well be a gold bug for all we know, the fact is the Republicans have realised that this is a debate about who can save the economy.
Invest in gold (voters)
In the history of recent elections this is unusual, in my lifetime elections have been fought on issues of foreign policy. Now economic anxieties have pushed this to one side.
The Republicans know that the ‘spend, spend, spend’ tactic will not be swallowed for much longer. The press believe this move has been done to secure the ‘gold bug vote’ for the November elections.
This is something which politicians are interested in not just because it is a good idea, but also because it is what the people are beginning to think about, if they haven’t been for a long time already.
Several states in the US, of which Utah is the most famous, are making moves to see gold and silver become legal tender. This would not be done unless there was a demand for a sound alternative to fiat money.
On Friday afternoon CNBC ran a poll asking voters if they would support a gold standard. Of 19,000 voters, 69% voted ‘yes’, 7% voted ‘unsure’ and 24% voted ‘no’.
Gold Standard of democracy
In terms of finding a democratic monetary system, you find a historically proven one which works as well as a precious metal standard. As Peter Schiff writes;
‘…if you believe in individual liberty and limited government, then the gold standard is your best ally. Many people…look badly on the gold standard because it prevents central banks from using monetary policy to manage the economy. This, of course, may be its greatest attribute. Under a gold standard, the free market determines money supply and interest rates. Under our current system of paper money a few politically connected bankers make those determinations. The results have been disastrous, with the recent housing bubble and financial crisis being just the latest iterations.’
Some, in fact many, have blamed this on a desire to hark back to simpler times. It seems that the voters have finally realised that the only ones who are benefiting from the current system is the central bank and government. The gold standard would certainly prevent governments from hiding behind promises with big budgets and spending programmes. But it would secure the money supply of those who fund and vote for government.
Winding up mainstream antagonism to gold
What has been most amusing about the (potential) resurrection of the Gold Commission is the numbers of irate mainstream journalists and economists it has stirred up.
As Paul Krugman wrote in the New York Times at the weekend, ‘say this for the GOP: by resurrecting the very bad, no good, truly awful idea of a gold standard, they’ve given us something to talk about.’
Journalists seem terrified that if the Republicans were to restore the gold-back dollar then ‘the greenback’s credibility [as a reserve currency] would vanish and global superpowers would risk a new trade war’.
As we pointed out in an earlier article, the economist Robert Mundell once argued no national currency should ever be used as a leading reserve currency. He argues precious metals were used as international money over the centuries ‘because they were more efficient than other instruments in fulfilling the required functions of money.’ Mundell goes onto argue that currencies which are controlled at the whim of a government tend to weaken over the long term as supply begins to outweigh demand.
For Mundell, currencies in which there are opportunities to exploit and overvalue due to the monopoly of government, is ‘bad’ money. This has been no more the case than with the United States and the dollar. Not only are citizens choosing to opt out of using it but whole trading nations are as well.
The Libertarian Dr Tim Baker once said to me, he doesn’t know which currency is the right one but whatever currency is chosen by the people is the correct one. It might not be a majority yet, but there are plenty of US citizens who are looking for a new monetary system and they are looking to gold.
Perhaps those gold voters they are after are keen to uphold the US Constitution, which states ‘No State Shall make any Thing but Gold and Silver Coin a Tender in Payment of Debts’.
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