Monday, July 4, 2011

Gold Standard, Not.

The gold standard is being bandied about with wistful eyes by none other than James Grant, of Grant's Interest Rate Observer. Being the pessimist that Mr. Grant is, this rather surprised me. Perhaps he needs to freshen up on the history of the gold standard. The wiki page on the gold standard is a good place. In particular, I would draw your attention to the bits about how various governments have dropped the gold standard in order to deal with economic crisis, usually brought on by wars. It seems that the gold standard is great when the economic weather is good. It tends to curb inflation. However, when the going gets rough the gold standard is easily tossed aside. My take on these gold standard proponents is that they are shamelessly, gratuitously plugging their own investments in gold. How's that? If the US were to return the gold standard there would be a huge new demand for the commodity because there is such a huge amount of dollars on the books (i.e. M2, the money on deposits plus monies on loan) that the current world supply of gold could not represent the value at the current prices. Great news if you happen to own any which Mr. Grant did not happen to disclose. Hmmm, I wonder why. Few gold standard proponents ever do.

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