by Dave Kranzler, Investment Research Dynamics:
“You’ve assigned us the job of two direct, real-economy objectives: maximum employment, stable prices. If you assigned us [to] stabilize the dollar price of gold, monetary policy could do that, but the other things would fluctuate and we wouldn’t care,” Powell said from Capitol Hill. “We wouldn’t care if unemployment went up or down. That wouldn’t be our job anymore.” – Jerome Powell in response to a question about returning to the gold standard
Everything about that answer is incorrect. To begin with, the Fed apparently now has three“assigned” jobs: employment maximization, price stability and “moderate long-term interest rates” (federalreserve.gov). How can we take anything Powell says seriously if he’s not aware of the the duties of his job?
But let’s set that issue aside. In fact, if the dollar was backed by gold, the Fed would be irrelevant – the gold standard would take away completely any need for a Central Bank. Powell and his cohorts would not have any job at the Fed.
The function of a gold standard is not to “stablize” the price of the currency which is backed by gold. Interest rates can be used to “stabilize” the value of currency. Free markets, if ever allowed, would set the price of money. The function of the gold standard, fist and foremost, is to stabilize the supply of currency in relation to the wealth output of an economic system.
A Central Bank is not necessary to any economic system which has its currency backed by gold. If the U.S. had its monetary system tied to the value of the gold it holds in reserve, it would automatically serve the function of price stability. Remove gold from the equation and the macro variables fall apart rather quickly.
But let’s use reality to test this. Prior to the closure of the “gold window,” the U.S. largely was a creditor nation and never incurred unmanageable Government spending deficits except during wars. In fact, the amount of Treasury debt issued to fund the Viet Nam war ultimately led to the removal of the last remnants of the gold standard. This is because the U.S. Treasury did not have enough gold left to redeem debt issued to foreigners with that gold per the Bretton Woods Agreement. In short, the U.S. ran out gold so Nixon closed the gold window.
Take a look at the economic and fiscal condition of the United States from inception to 1971 and post-1971. Any “economist” or Central Banker (Powell is not an economist and probably never thought about gold until he was prepped to answer the possibility of a gold standard question) who opposes the gold standard is ignorant of historical facts or has ulterior motives.
Aside from his inability to respond intelligently to the gold standard question (he should have taken notes from Greenspan), Powell knows that a zero interest rate policy and money printing are the only ways that he and his elitist cronies can keep the system from collapsing until they finish extracting the last remnants of wealth from the public. A gold standard would stand in the way of this effort.