Requiem For The Dollar: Mourning The Gold Standard

Here’s a very insightful essay by James Grant, editor of Grant’s Interest Rate Observer. He’s a famous financial curmudgeon … but on this issue I think he’s 100% right, writing in the Wall Street Journal:

Ben S. Bernanke doesn’t know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman’s noose is another. Section 19 of this country’s founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people’s money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman’s head.

I wonder, though, just how far we have really come in the past 200-odd years. To give modernity its due, the dollar has cut a swath in the world. There’s no greater success story in the long history of money than the common greenback. Of no intrinsic value, collateralized by nothing, it passes from hand to trusting hand the world over. More than half of the $923 billion’s worth of currency in circulation is in the possession of foreigners.

In ancient times, the solidus circulated far and wide. But it was a tangible thing, a gold coin struck by the Byzantine Empire. Between Waterloo and the Great Depression, the pound sterling ruled the roost. But it was convertible into gold—slip your bank notes through a teller’s window and the Bank of England would return the appropriate number of gold sovereigns. The dollar is faith-based. There’s nothing behind it but Congress.

But now the world is losing faith, as well it might. It’s not that the dollar is overvalued—economists at Deutsche Bank estimate it’s 20% too cheap against the euro. The problem lies with its management. The greenback is a glorious old brand that’s looking more and more like General Motors…

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  • http://www.facebook.com/people/Charles-DeYoe/100000220201226 Charles DeYoe

    I understand the theoretical value of having money backed in something of objective value. But gold doesn’t really have an objective worth – it’s rare and a gold standard could help prevent inflation but that’s about it IMO.

    I mean if the dollar was absolutely worthless and the US becomes some nightmare poverty world having some gold won’t help. If you’re starving to death would you rather have an ounce of gold or a can of beans?
    (Basically I just want to say that in the face of total economic collapse, I don’t think a gold standard would save us.)

    Then again, economics have never been my strong point…

  • http://www.facebook.com/people/Charles-DeYoe/100000220201226 Charles DeYoe

    I understand the theoretical value of having money backed in something of objective value. But gold doesn't really have an objective worth – it's rare and a gold standard could help prevent inflation but that's about it IMO.

    I mean if the dollar was absolutely worthless and the US becomes some nightmare poverty world having some gold won't help. If you're starving to death would you rather have an ounce of gold or a can of beans?
    (Basically I just want to say that in the face of total economic collapse, I don't think a gold standard would save us.)

    Then again, economics have never been my strong point…

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