Monday, October 22, 2012

Steve Forbes: Ron Paul Is Right about Gold

Check this out from Steve Forbes:

A new gold standard is crucial. The disasters that the Federal Reserve and other central banks are inflicting on us with their funny-money policies are enormous and underappreciated. An unstable dollar is wreaking havoc on our capital markets, depriving us of money for productive enterprises and future enterprises while subsidizing government debt on a scale never before seen in U.S. history. The zero-interest-rate policy destroys capital by punishing savers and enabling the central bank to allocate where capital goes. By definition such central planning means subpar or negative returns. No one believes, given the finances of the U.S. government, that a ten-year Treasury bond should yield only 1.8%.

The promiscuous printing of money in the U.S., Europe and elsewhere is enabling governments to put off pro-growth structural reforms and giving them incentive to increase the burdens on the private sector. The poster child here, of course, is France, raising its maximum income tax rate to 75%. Not since the early 1930s have governments of major countries collectively acted so destructively. The only difference between then and today—and it is a gargantuan one—is that we haven’t destroyed the global trading and capital systems. But even they are facing increasing strains and will continue to do so unless policies are changed.

What the Fed is doing through its binge buying of bonds is enabling Washington to consume our national wealth. Instead of creating new wealth we are beginning to destroy that which exists. No wonder tens of millions of people feel—rightly—that their real incomes are declining and their financial situations are coming under more pressure. In real terms the stock market is lower today than it was in the late 1990s, and even in absolute terms it still isn’t where it was in 2007.

Can we move forward on a gold standard before a real catastrophe à la the 1930s results?

A big part of the problem is that economics classes no longer teach the fundamental importance of stable money. The gold standard, if men tioned at all, is derisively dismissed as a relic, like the Egyptian pyramids or the Ford Model T.

Unless Mitt Romney educates himself quickly on the need for monetary reform (yes, he will win this election, despite all the claptrap to the contrary), we are going to have to seriously and deliberately begin the process of education and experimentation.

The gold commission advocated by the Republican platform would be an excellent start. There is something big that could be done simultaneously to get the golden ball rolling: remove legal barriers to alternative, nongovernment currencies in the U.S. We are allowed to use pounds, yen, euros and any other currency to carry out a transaction. Why not allow metal-based or -backed currencies to be used?

The need for such legislation is crucial. As noted monetary expert Nathan Lewis told Congress this summer in testimony on the desirability of allowing alternative domestic currencies: “If a house were purchased using U.S. Mint gold coins, the  transfer of the coins to the seller would be regarded as a ‘sale’ of gold bullion for tax purposes, and subject to capital gains taxes. If the same transaction were done with euros, no such taxes would apply. In addition, purchases or sales of small quantities of gold are subject to sales taxes in many states.”

To that end, when he takes office, President Romney should urge Congress to pass a bill similar to that proposed by Ron Paul, the Free Competition in Currency Act, which would abolish all federal taxes on gold and silver bullion, as well as ban state and local taxes on them. It would explicitly allow gold-based monetary transactions and would remove the onerous reporting rules that now afflict gold and silver bullion buyers. Currently the federal government wages a virtual jihad against any attempt by individuals or companies to create gold-based monetary instruments for commercial transactions...

The combination of getting a serious debate on the gold standard going and sweeping away our legal tender laws barring competitive domestic currency would hasten the day that we’ll once again have a gold-based currency like that which did our country so much measurable good for 180 years.

(ht Mark Addleman)


  1. Steve Forbes goes back and forth in my book. Sometimes he says things like this. Other times I realize that he is a member of influential groups like PNAC. Why is he a member of PNAC?

    1. Steve Forbes' words (at least from what I've heard so far) are generally pretty good. However, I simply don't trust him due to him being involved in PNAC. It's just too shady.

      I'm surprised Bob didn't ask him about that. And about the PNAC line that some say was the motivation behind 9/11 (needing a new Pearl Harbor to allow our government to be able to attack countries in the Middle East).


  3. Great article, Steve. I read Currency Wars recently too...similar sentiment.

    But I doubt it will be high on the list of priorities, unfortunately.

    And Romney's hands will be tied unless GOP sweeps Senate too, but that seems unlikely.

  4. ""

    From the Open Letter to Ron Paul link:
    "A simple example (among many others that this short space doesn’t allow us to elaborate on) should help visualize our point. If gold has a chance as an alternative asset, in simultaneous competition with the US dollar, it will only be natural that we witness once more Gresham’s law at play. Gresham’s law, simply put, states that bad money displaces good money out of circulation. In a leveraged system like the one we live in, this means that market participants would arbitrage the system. They would simply borrow in US dollars and save in gold . To some degree, this is starting to slowly occur, but today the speed of this change is driven by the deterioration of the paper money, not by the quality of gold as legal tender. However, if gold was allowed to compete, this process would take place faster. This would quickly lead to the bankruptcy of the entire financial system, as we know it , for the cost of borrowing would increase exponentially, in real terms (i.e. in gold). But, if Mr. Paul does not end the Fed, as long as this institution survives, it will be forced to provide liquidity to the financial institutions, creating hyperinflation along the way."

    That's not how Gresham's Law works at all. Bad money pushing out good is when there's a FIXED exchange rate. No fixed exchange rate means good money pushes out bad.

    There must be a fixed exchange rate for bad money to push out good since the lack of one would mean receivers of the money can simply refuse the bad money.

    The Wikipedia article he link's clearly explains:

    "Gresham's law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law.""

    Martin Sibileau pulled a Krugman.

  5. He's no libertarian, but at least he advocates sound money.

  6. Ooh, this shouldn't be. There will be less gold buyers in the country, and less profit as well for the economy. And no matter if Obama still won, this should still be one of the concerns to push for the next four years.