Saturday, August 25, 2012

Ezra Klein Wants to Make Sure You Know He is a Gold Hater

WaPo's economic columnist writes:
In 1981, President Ronald Reagan created the Gold Commission. The purpose of the commission was to appease conservatives who wanted to see the country return to the gold standard. The conclusion of the Commission? That’s a clown idea, bro.... economist Barry Eichengreen writes, a gold standard would mean ”the Fed would have little ability to act as a lender of last resort to the banking and financial system. The kind of liquidity injections it made to prevent the financial system from collapsing in the autumn of 2008 would become impossible because it could provide additional credit only if it somehow came into possession of additional gold. Given the fragility of banks and financial markets, this would seem a recipe for disaster.”
Unlike 1981, in other words, when the gold standard made a kind of superficial sense as a response to our problems, 2012 is a moment when a gold standard would clearly have worsened our problems. Dramatically. As Eichengreen concludes, the idea’s “proponents paint the gold standard as a guarantee of financial stability; in practice, it would be precisely the opposite.”
This is classic Keynesian talk, which completely ignores the Federal Reserve role in causing the business cycle. As for Bernanke preventing the financial system from collapsing, what he did was prevent the banksters from collapsing. If the banksters would have been allowed to fail, sound banks would have emerged who didn't operate on Wall Street as though it was the Wild West.

To be clear, gold prevents the money manipulations that can occur under a government controlled paper money. Gold can not be printed at will, the way paper money can. That's why governments and elitists hate it.


  1. Robert,
    when most people talk about the gold standard (or any other hard currency standard), what they are addressing is the increase in the money supply by the printer-in-chief, however, they do not address the creation of credit out of thin air (like many mortgage lenders did prior to 2008 collapse), which , in my opinion was the major source of financial catastrophe. So in addition to hard currency standard, what other measures need to be put in place to prevent creation of credit out of thin air?


  2. "...2012 is a moment when a gold standard would clearly have worsened our problems."

    2012 would not have happened were it in effect because gradual, increasing specie redemption would be a signal of investors losing confidence with the system, unlike having to wait for major investment banks to scurry to the Fed, hats in hand, begging for bailouts.

  3. It is very telling that Klein uses Eichengreen to defend his Keynesian sentiments regarding gold. When I was in college, the political economy department at Tulane invited Eichengreen to talk about economics and public policy. The talk was so dry, so filled with charts and Keynesian modeling and statist gobbeldygook that even the professors who had invited him were battling to stay awake.
    Eichengreen has been bashing gold his entire career (see his WSJ articles if you can bear it), and so now of course, even if he knew he was wrong about it, he's in too deep professionally with the gold-hating crowd to ever find his way out of the statist woods, so to speak.
    How wonderful it was to coincidentally have discovered Austrian economics soon after that dreadfully boring visiting lecture at school!

    -Adam Smith, Centennial, CO

  4. The best solution, as always, is free and unfettered competition.

    Currency is no different. Let there be a multitude of currencies! All of us should be free to use whatever medium of exchange we choose - including a medium of exchange that is not tied to gold.

  5. I'm sick of the logical fallacies, bro. Klein commits the either/or fallacy. Either we have a Fed or banks will experience runs due to a lack of "liquidity." He ignores the role the market would play in limiting the amount a bank could inflate via fractional reserve banking. Without a Fed (and without the regulations that made the so-called "freebanking" of the late 1800s problematic), the market would regulate the banks, mostly eliminating the need for "liquidity" injections.

  6. And what a simple solution it might be..... allow banks to maintain gold and silver accounts, and citizens to choose whether they hold savings in the form of cash or gold/silver. Finally, mandating the Fed use 50% of each increase in money supply to buy gold/silver and let the markets find the 'equilibrium'.