Friday, November 21, 2014

St Louis Fed Puts Out Video Attack On Gold Standard

David Andolfatto, a vice president and economist with the St. Louis Fed, has put out a series of videos on the gold standard. In the clip below, he attacks the gold standard as a means of exchange and argues that fiat paper money is a better system.

In this brief two minute and 16 second video, the series of distortions is quite remarkable.

First the statement is made that under the Federal Reserve System, price instability has been eliminated. This is simply absurd. The price level has increased by 2298.3% since the start if the Federal Reserve.

What one dollar bought you in 1913, would now cost $23.98.

[T]he executive director of the U.S. Congressional Gold Commission has explained the absurdity of the St. Louis Fed claim:
[T[he great virtue of the gold standard was that it assured long-term price stability. Compare the aforementioned average annual inflation rate of 0.1 percent between 1880 and 1914 with the average of 4.1 percent between 1946 and 2003
Andolfatto then goes on to create a scenario where under a "gold standard" there would not be enough gold for those wanting to redeem thier paper into gold. But the problem here is not the gold standard per se, it is a central bank printing more receipts for gold then actual gold that is held by the CB.

The easy solution to this problem, which Andolfatto does not discuss, is either a return to gold as currency (as opposed to a gold standard) or a gold standard where the central bank does not print receipts (currency) beyond the amount that is actually backed up by gold in its vaults.

Further, Andolfatto does not discuss the business cycle implications of central bank money printing. He, incorrectly, implies that it has something to do with the gold standard. when it is in fact the result of any type of central bank money printing.

For more on these topics see:

The Fed Flunks: My Speech at the New York Federal Reserve Bank by Robert Wenzel


Austrian School Business Cycle Theory by Murray Rothbard


  1. "Gold Is Money And Nothing Else" - JP Morgan's Full December 1912 Testimony To Congress

    In December 1912, no lessor man than J.P.Morgan testified to Congress to "justify Wall Street," during investigations over alleged manipulation and collusion. The transcript reads like it could have been given yesterday (as nothing ever changes) but at its heart the banker laid out 33 "Morgan Epigrams" which appear - in the ensuing 102 years - have been lost to greed and arrogance... The irony is wondrous: "Securities do not always prove good", "Money is gold, and nothing else", "I think manipulation is always bad."

    J.P.Morgan's 33 Epigrams:

  2. There's no doubt in my mind that if the Fed responded to a bank run by creating new money on demand to cover any shortfall, the run would be quickly contained. There wouldn't be a run in the first place.

    But if that's their policy, why do we have deposit insurance? The Fed could simply make it policy to generate new money for any depositor who wants to withdraw from a bank that doesn't have it on hand. What's a little more inflation on top of what they already produce?

    The big culprit he (deliberately?) omitted is the role fractional reserve banking plays in bank panics. Because if the deposits are in the bank, there's nothing to panic about...

  3. But just as a 'gold standard' is supposed to blame for the Fed bonehead's remark about bank runs.......we also need a honest and 100% reserve banking system, and not the corrupt and essentially bankrupt fractional reserve system to prevent this. Also, the definition of inflation itself is ONLY the increase in money supply, either being increase in the supply of a commodity money or the much more convenient and evil simple paper money creation fiat system.

  4. The Golden Canary

    Currently precious metals prices are lower than the cost to mine them. Sure, miners can go to their hi-grade veins and keep running, but that is not a sustainable business model, only to be used for emergency situations.
    The central mass media companies, all owned by the same cabal of investors, are providing the canary songs. They have collectively acted to keep most gold stories out of the news. Several notable analysts have changed their songs, joining the dead canary, consistently insisting that gold is not manipulated, that it trades according to supply and demand rules.

    But these analysts are also resorting to the argument tactics of propagandists: making flat out denials of a problem with no credible evidence other than "the canary is still singing," outright ridicule of others who disagree instead of honest debate and dialog.

    Are we in an emergency situation?

    Over the past several years, we are discovering now, the Chinese government has imported massive quantities of gold—in fact, they have been purchasing more gold than the world’s gold mines combined produce each year. The rest is purchased from the recycled gold supply—you know, all those little shops that will buy your broken jewelry and any other gold items that you need to exchange for dollars. But while China has been importing over 2000 tons per year, the World Gold Council has been singing a Chinese song of 500 tons per year. China don’t care. They like buying undervalued gold. I wonder what they plan to do with it all as they implement their plan to become a world reserve currency?

  5. I especially like the part where the Gov (hey, where's the FED in this picture?) recaptures the excess funds "lent" to reduce the panic.
    Yeah, like THAT'S gonna happen. That would be fun to watch. (from the Cayman's sitting on a pot of gold, maybe)