Be careful what you wish for Ron Paul. What a world on the gold standard may look like
CNBC’s Mark Koba on Thursday has a critical look at US presidential candidate Ron Paul’s ideal world – one without a Federal Reserve and a return to the gold standard.
Paul who belongs to the libertarian wing of the Republican party, has published two tomes on the topic – End The Fed and The Case for Gold.
Koba writes tying the US dollar’s value to a ounces of gold has been done before — even during times that a Fed was in place:
Reverting back to gold would do more harm than good, even in the Fed’s worst days, says David Abuaf, CFA and CIO of Hefty Wealth Partners.
“The gold standard brought about some long-run price stability but it’s also led to short-run volatility,” Abuaf explains. “It acts as a limit on economic growth. The money supply would be based on the production of gold. The management of money is easier with a fiat currency.”
And there may not be enough gold to go around to back up the dollar — it could be hostage to the whims of gold traders.
Click here to read further at CNBC.
Ron Paul may own the gold debate among presidential contenders but he is not the only one promoting stronger ties between the value of the dollar and bullion.
Newt Gingrich while campaigning in South Carolina recently said that he would appoint a commission to look into gold “because a dollar you save today ought to be worth a dollar 30 years from now.”
NPR quotes Simon Johnson, former chief economist at the IMF, who has some sobering arguments against Gingrich and Paul:
“First of all, the supply and demand for gold around the world changes. It changed a lot during the 19th century, so there were big fluctuations in value from that,” he says. “Secondly, the dollar was convertible into gold — except when it wasn’t.”
In the 1800s, before U.S. greenbacks became dominant, banks would issue currency backed by gold, but in financial panics, that convertibility was often suspended. And, says Johnson, being under the gold standard does not necessarily force governments into fiscal rectitude. That was obvious back in 1812 when the British attacked Washington and burned the U.S. Treasury.
“The only good news for the Americans the day the British burned the Treasury was [that] there was nothing in the Treasury. The country was completely broke,” Johnson says. “You could absolutely drive the country into the ground, ruin public finances and face the awful consequences even under the gold standard.”
MINING.com reported how Paul expressed his sentiments about gold in congressional hearings to current Fed chief Ben Bernanke in July. Click here for video of the exchange.
Jack Caldwell of Infomine had an in-depth look at Romney, Gingrich and Ron Paul’s views on and likely support for the broader mining industry:
Ron Paul’s fortune is mainly invested in Canadian junior mining companies should give up hope and a reason to support him become president. Just think, if the following is true, as soon as Paul becomes president, mining by those Vancouver juniors around the Canyon will explode and Ron will be the richest president in history.
Eric McWhinnie of Wall Street Cheat Sheet wrote in December, according to the latest data available from his 2010 Form A financial disclosure statement, Paul is heavily invested in gold (NYSEARCA:GLD) and silver(NYSEARCA:SLV).
The WSJ explains, “The remainder of Rep. Paul’s portfolio – fully 64% of his assets – is entirely in gold and silver mining stocks. He owns no Apple (NASDAQ:AAPL), noExxonMobil (NYSE:XOM), no Procter & Gamble (NYSE:PG), no General Electric (NYSE:GE), no Johnson & Johnson(NYSE:JNJ), not even a diversified mutual fund that holds a broad basket of stocks.”
Click here for the list of Paul’s top 15 stock investments.
It’s not only Paul that is invested in gold. Frontrunner Mitt Romney also holds gold, but it’s a fraction of his portfolio.
The FrumForum in August teased out an interesting factoid after Republican presidential candidate Mitt Romney filed his financial disclosure report: he and his wife Ann own a significant amount of gold.
Out of a personal wealth of $190 and $250 million, the couple own between $250,000 and $500,000 in gold.
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11 Comments
RPP
When will you realize that wealth does NOT equal money? A society doesnt suddenly get richer if you double the money supply, all you do then is print some paper and dilute the purchasing power of each dollar. Conversely, if you halved the money supply, national wealth wouldnt be halved either. Money is nothing but a media of exchange, it is not wealth itself. Does supply and demand of gold fluctuate? Sure, but so does that of paper money, and with the latter, supply fluctuates far more than that of gold. And herein lies the problem, because money isnt neutral, and any increases in supply have varying effects on money holders, with those who get the new money benefitting. And guess who that is: banks. Seems like a conflict of interest to me. In fact since 1913 the Fed has been nothing but a massive wealth transfer machine, transferring wealth from savers to banks, subsidizing governments at the expense of savers and absolutely destroying money holdings of the middle and lower classes. The rest of your article is just garbage. Trying to link Paul’s stance on the fed and gold to his investments is trash journalism.
rpp
And I see the other “argument” against gold is that aliens may come to our shores and take our gold:) Is this a serious economic argument? Krugman wanted aliens to come so we could do some major deficit spending on defense.
rpp
It acts as a limit on economic growth. The money supply would be based on the production of gold. The management of money is easier with a fiat currency.”
Thats the problem, isnt it? That money management seems so easy. All this money management, which is so “easy,” has done, is to basically devalue the doller to the point of where it is worth 3% of its 1913 pre-Fed value, as well as drive huge bubbles have nearly crippled the economy.
flipside
Another paper schill fiat banker buddy writing this story—aah hit piece.
Totally agree with RPP—–TRASHEM JOURNALISM.
Openmindone
This piece presents interesting and provocative quotes — caveats but no illumination. This subject deserves rigorous debate. Like appetizers, after taking them in one wants the full meal.
miningman1
If we go to a gold standard, the price of gold would explode, since there would be a shortage of gold and the government would have to buy gold at any price. The people that own gold would instantly become very wealthy. It seems to be a self serving action so the gold owners can justify their gold ownership.
Claude B.
In 1913 (the start of Federal Reserve), with $1.00 you could feed a familly.
Now with the same dollard you don’t have a cup of coffee.
FM
Abuaf explains. “It acts as a limit on economic growth.”
A gold standard would act as a limit against artificial economic growth instead of true economic growth due to the Free Market. There would never have been a housing bubble or a financial bubble if we were on the gold standard.
Also since 1913, the purchasing power of the dollar has dropped 98%. When Pepsi first started selling cola, a bottle used to cost a nickel. Today, even with modern efficiencies with automated mass production & transportation, a bottle of Pepsi will cost me $1.25. It’s essentially the same sugar water when they first made it. The only difference is that the purchasing power of my dollar is in the toilet & it is only going to get worse if we don’t change our fiscal ways.
Sicilian Gold
THE FOLLOW CENTRAL BANKS ARE NOW STOCKPILING GOLD:
China
India
Russia
Brazil
most European Central Banks
Bolivia
Venezuela
Saudi Arabia
Qatar
Thailand
Mexico
South Korea
Malta
Estonia
Ecuador
Columbia
Kazakhstan
Iran
Sri Lanka
the Philippines
Mauritius
Bangladesh
This is clear indication that the world is already moving towards some type of gold-based monetary system. We should start listening to what the world is saying….things are changing!!
Jm_86
“And there may not be enough gold to go around to back up the dollar — it could be hostage to the whims of gold traders. ”
Why do you post articles by complete morons?
Rene Coda
Agree! Garbage. Either the guy is a total ignoramus or he believes we are all zombies. But we don’t need a gold standard. This was a creation of the British Empire when it was the biggest gold producer of the planet. South Africa was producing about 90% of all the gold mined per year. And the British kept its price quite high.
What we need is a return to gold as a medium of exchange. To which you could add silver, nickel, copper and other metals.