Dow Jones reports:
Federal Reserve Chairman Ben Bernanke on Tuesday defended the country's break with a gold standard at the first of his four lectures at George Washington University.
Bernanke explained to a packed lecture hall why a gold standard harmed the global economy during the Great Depression. (This is incredible. The reason the Great Depression occurred was because the Fed created money far beyond the gold they had in reserves to backup the dollar.-RW) Some recent critics of the Fed have pushed for a return to the gold standard, in which paper money is backed by gold. The U.S. was on the gold standard between the Civil War until the 1930s, and the tie was fully severed by President Richard Nixon in 1971.
The gold standard poses both practical and policy problems, Bernanke said. On the practical side, it can be a waste of resources to secure all the gold needed to back currency, moving it from South Africa to the basement of the Federal Reserve Bank of New York, for example, or as he put it, "all this gold is being dug up and being put back into another hole." (The very fact that it is so difficult to "dig up gold" is a strength for gold. It means it can not be created as aggressively as central bank paper money. That's why Bernanke and other central bankers hate gold. It puts a check on their printing-RW)
More significantly, a country on a gold standard will see more short-term volatility, Bernanke said. (Short-term volatility? And the current Federal Reserve manipulated economy is a sign of calm?-RW)
"Since the gold standard determines the money supply, there's not much scope for the central bank to use monetary policy to stabilize the economy," he said (Ah yes, Bennie, you got it. A gold standard leaves no room for you to manipulate the economy for the benefit of the banksters.-RW)Bernanke noted the gold standard did not prevent frequent financial panics. (That's because with a true gold standard there would be no financial panic in the first place!-RW)...
Part of the reason the Fed failed in its managing of the Great Depression were its attempts to stay on the gold standard, he noted. One of Franklin Delano Roosevelt's most successful moves as president was to begin to take the country off the gold standard, he said, (Give me a break. The move off the gold standard was an inside deal which benefited insiders Bernard Baruch and John Maynard Keynes, who urged FDR to confiscate gold held by Americans. Keynes called gold a "barbarous relic" in his 1924 book, Monetary Reform (p 172). Yet, when he visited FDR in the 1930's, he, along with Bernard Baruch, urged FDR to prop up the price of gold [Naturally after it was confiscated from the citizens of the U.S. and made illegal to own]. Keynes even wrote an open letter to FDR that appeared in NYT, and other U.S. papers, urging FDR to stabilize the "drunken" price movements in gold. Meanwhile Baruch and Keynes loaded up on gold stocks .Starting in late 1933, everyday, FDR would meet with advisers and set the gold price--driving the price up [when every other commodity price was collapsing]. Finally, in April 1934 as part of the Gold Reserve Act of 1934, the price of gold was fixed at $35 an ounce--67% above its pre-1933 price. Keynes and Baruch made huge profits. Of course, the average American had his gold confiscated and ended up with zilch.-RW)
(htMattMakinson)
Helicopter Ben explanations are like a dazed and clumsy stumble while your injections of inconvenient truths are repeated smacks in the face from many an unseen rake handle.
ReplyDeletehttp://www.youtube.com/watch?v=NmNObROcBOo
"Bernanke noted the gold standard did not prevent frequent financial panics."
ReplyDeleteThere's an interesting video at YouTube that CongressmanRonPaul has on his channel of George Selgin giving an overview of the US banking system from the 1800's on. It's called "Why was the Fed Created?"
Basically, the reason why there were so many panics after the Civil War is that banknotes had to be backed by US gov't bonds by law, which was put in place during the Civil War to increase the gov't's ability to borrow (for better or worse).
However, after the war, the gov't was running surpluses and paying off the bonds backing the banknotes, which meant less banknotes could be issued as the debt was paid off, causing the infamous creeping monetary deflation of the late 1800's.
Furthermore, the process to get US bonds when currency was in high demand was uneconomical and resulted in panics when currency was highly demanded (at which point the banks would have to redeem with gold, which made the panics even worse by contracting reserves).
George Selgin contrasts this with Canada's banking system, where banknotes were backed by usual banking assets, and they had 0 bank failures during the depression (and only 1 in the 20's).
Since Canadian banks did not have to go through the process of buying a specific, legally-mandated asset to back issued notes, they could simply swap demand deposits for currency when there was a high demand for currency (like during harvest season).
Go watch the video. Bernanke's trying to push information down the memory hole.
Central bankers are slimy fellows.
ReplyDeleteWhenever a Keynesian or interventionist finds the need to misrepresent the Austrian position [always], we need to count that as a win for us.
ReplyDeleteSimone Foxman of Fed cheerleader rag Business Insider makes an incredulous defense on behalf of what the Fed does: "The Federal Reserve can do whatever it wants. There's no need for the bank to balance its "balance sheet," and the amount of leverage it has doesn't actually put it at risk because it's not held to the same standards as commercial banks. A central bank has all the data, all the policy tools, and thus all the power—if it wants to play with the numbers it can and it's not against the rules. The Federal Reserve is not a commercial bank, and it can't fail like one. So don't expect it to act like one."
ReplyDeleteI also found one of Bernanke's 03/20/2012 ppt lecture slides very interesting titled "Economic Stability Concerns" addressing use of gold, trashing it on the basis of "medium run" concerns ("it sometimes caused periods of inflation and deflation") but admitted that ("the gold standard promoted price stability over the very long run.") Obviously the Fed is a giant fail whale in maintaining the value of the dollar over "the very long run" (see incredible shrinking dollar graphic 1913 to 2005 http://bit.ly/GD6iiG) so for this reason alone Bernanke just made the case that a purely Fiat Currency tied to nothing is a disaster – as is the Fed Central Bank.
Interesting AP MSM article on how the class came about http://www.kansas.com/2012/03/20/2263696/bernanke-revisits-college-as-guest.html
The Fed is becoming a cornered animal, due to the intense sunlight on them, and they know it -- hence the bum rush to indoctrinate school children, monitor online sites, and now sending the head guy out to trash gold and price stability.
I climbed the tree in my back yard when I was young. A limb snapped and I fell to the ground, breaking my arm. I blame gravity.
ReplyDeleteWe should abolish gravity.
Bernanke printed too much money, and held interest rates too low for too long, pushing the economy to new, dangerous heights. The snapping limb was the housing bubble, and the economy has come crashing down.
The questin is, what does Bernanke want to abolish?