The role played by ingots in the gold reserves of the banks is proof that the monetary standard consists in the precious metal, and not in the proclamation of the authorities.
-Ludwig von Mises, Theory of Money and Credit
This still holds true today, as governments, central banks, and the IMF continue to hold onto thousands of tons of gold. They know that once the experiment with irredeemable fiat money ends, it will end badly. And when that happens, they will still be sitting pretty with their vaults full of real money, loath as they are to admit it publicly.
One of the St. Louis Fed’s Vice Presidents, Stephen D. Williamson, made the news recently for his white paper criticizing the results of the Fed’s quantitative easing (QE) programs. While his opinions aren’t necessarily reflective of the consensus view among the Fed’s economists and policymakers, they definitely bear some looking into.
Former Fed Chairman Ben Bernanke is now a Distinguished Fellow at the Brookings Institution in Washington, DC. On Monday, along with a number of other former Fed officials, he participated in an event at Brookings on the topic of Federal Reserve independence, governance, and accountability. One of his quotes in particular was highly shocking.
Remember when Ron Paul asked Ben Bernanke whether gold was money? And when he asked him why the Federal Reserve held gold rather than, say, diamonds. Here’s the clip, which we’ve posted before.
In the news today was a mention about the Venezuelan central bank, which is apparently so hard up for reserves that is has decided to allow its central bank to hold diamonds as part of its portfolio. Diamonds may be a girl’s best friend but they’re not a great investment, nor are they a good form of reserves.
Although diamonds got the headline, there was also mention of Venezuela hoping to receive loans from China to help bolster its financial position. If the Venezuelans are successful, chalk up another country that is slowly but surely moving away from the dollar.
Alan Greenspan’s recent comments about gold have been making the rounds online. Greenspan famously declared during his tenure as Chairman of the Federal Reserve Board of Governors that the gold standard was obsolete because the Fed effectively acted as though it were on a gold standard.
But as I have testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was, and indeed since the late 1970s central bankers generally have behaved as though we were on the gold standard.
So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard? And the answer is: I do not think so, because we are acting as though we were there.
The video of Greenspan’s exchange with Congressman Ron Paul is worth watching too, as it occurred during Greenspan’s final hearing as Chairman before the House of Representatives. The housing bubble was well underway, and not much more than two years after Greenspan’s testimony the first rumblings of the financial crisis were beginning to be felt on Wall Street.
This article by Carl Menger Center Board Member Prof. Joseph Salerno has been reprinted with permission from the Ludwig von Mises Institute.
Four Reasons the Bernanke-Yellen Asset-Price Inflation May Be Nearing Its End
By Joseph T. Salerno
There are strong indications that the remarkable run up of asset prices in the last few years is beginning to run out of steam and may be on the verge of collapse. We will leave aside the question of whether the asset inflation is symptomatic of a garden-variety inflationary boom or is a more virulent bubble phenomenon in which prices are rising today simply because buyers anticipate that they will rise tomorrow.