Adviser bashes GOP plan to consider return to money backed by metal; others not hot on the idea, either
The Republican Party is reportedly interested in discussing a return to the gold standard for the U.S. dollar.
The Financial Times reported today that a draft of the party's platform for its convention next week includes a call for an audit of the Federal Reserve Bank monetary policy and the establishment of a commission to explore the idea of returning to the gold standard.
Under a gold standard monetary policy, a country pegged the price of its currency to a specific amount of gold. Between 1834 and 1933, the gold price was fixed at $20.67 an ounce. The system was effectively ended by President Franklin Roosevelt in 1933, when he briefly outlawed private gold ownership and then raised the gold price for international transactions to $35. The link between gold and the dollar was formally ended by President Richard Nixon in 1971.
The benefit of the gold standard is that it effectively fixes the monetary supply and makes it difficult for governments to inflate prices by issuing more currency.
Three financial advisers weighed in on the idea of a return to the gold standard.
Ric Edelman, Edelman Financial Group
“I don't think it's worth discussing. It would be incredibly disruptive to financial markets. The point of creating the Federal Reserve Bank was to have an independent body implementing monetary policy. Just because you don't like the monetary policy, it doesn't mean you should disband it.
“Certain fiscal hawks like the idea because it's rigid and would help prevent runaway government spending. But it's a radical solution whose time has come and gone. Maybe we should move to a sand standard. There's plenty of sand. How about this for a solution: Tell Congress to stop authorizing spending bills.”
Kathy Boyle, Chapin Hill Advisors Inc.
“It's a political ploy by the Republicans to take the focus off of themselves and put it on the Fed and uncontrolled spending. They can blame Obama for it. It has absolutely no chance of being implemented nor does it make any sense.”
“When we came off the gold standard in the early 1970s we had outstanding debt of $400 billion. Now we have $15 trillion in debt. Is there even enough gold in the world to back that amount of debt?”
Kim Ip, Luminous Capital LLC
“I'm in favor of a strong dollar, but I'm not in favor of the gold standard. It would limit monetary flexibility to the amount of gold you can extract from the ground. That's too limiting a tool to manage a complex global economy.
“It's not feasible, and it's not sensible monetary policy. It's far too limiting to have monetary policy captive to our gold reserves. It would be disastrous. We need sound monetary policy, but to go back to a policy of the early 20th century is a bad idea.”
