Last month, the Federal Reserve Bank of St. Louis published an essay that supposedly debunks the idea that a monetary gold standard can stabilize and improve economies. The piece is blatant propaganda that returns to the same excuse central bankers always use to discredit the gold standard. Namely, that tying a currency to gold prevents a government and its central bank from quickly responding to economic problems by manipulating the money supply. This is the same argument used to defeat the “Save Our Swiss Gold†campaign back in November, which would have forced the Swiss National Bank to significantly increase its gold reserves.
Here’s the conclusion of Scott A. Wolla’s gold hit piece for the Fed:
A gold standard ties the value of money to a country’s stock of gold reserves. While some argue that a gold standard can effectively maintain price stability over long periods, governments still have the ability to change their money supply and price level simply by changing the official gold-to-money ratio. Moreover, a gold standard can be problematic because of sudden gold inflows and outflows that cause the supply of money, and therefore prices, to fluctuate. In the end, a gold standard is not needed to preserve price stability as long as a country’s central bank is independent and has a clear mandate to achieve price stability.â€
You’ll notice Wolla also relies upon the idea that central banks like the Fed are independent of the government. He argues that this autonomy prevents central banks from printing money solely to “inflate away†sovereign debt for the benefit of politicians. It’s hard to read this dribble with a straight face, especially when one of the most notorious central bankers of our time – Alan Greenspan – recently and publicly declared, “I never said the central bank is independent!â€Â Greenspan also suggested gold is a good investment, because he sees inflation coming thanks to the Fed’s policies.
