Steve Forbes Promotes a Gold Standard

Steve Forbes, speaking recently in Las Vegas, continued to advocate a gold standard of sorts–  i.e. pegging the US dollar to gold at (say) $1200 per ounce.  If gold rises to $1300, the Fed decreases the supply of dollars.  It it falls to $1100, the Fed inflates.

Forbes

He should be commended (as a representative of mainstream politics and the mainstream financial press) for talking about gold, money, and monetary policy generally.  Plus he makes some very good points about the moral hazards engendered by today’s Fed policy:

“People feel that the link between effort and reward has been eroded,” Forbes said.

Inflation, which is nudging upward in the United States, is a “tax,” Forbes said. He questioned how Fed policies that are causing rising inflation and boosting the cost of living for a typical American by $1,000 a year are helping the economy.

With the current quantitative-easing policies, the Fed will keep its bloated balance sheet, Forbes said. The Fed’s action is taking money out of economy and giving it to a wasteful federal government – hurting small businesses that need to be healthy to create jobs, he added.

“The big banks are now simply hand maidens of the federal government,” Forbes said.

“When we had a gold standard, there was little currency trading,” Forbes said. “Now, volume in currency trading is high.”

Fundamentally, however, Forbes’s plan cannot work for the same reason monopoly political institutions cannot work. No central bank can operate independent of financial and political pressure.  Do we expect Congress to insure the Fed adheres to the proposed gold peg rule?  Will Congress mandate this statutorily?  Will the Fed relax or abandon the rule for wars, depressions, and other government-created calamities?

If Forbes really wants to end crony capitalism, why not simply join Ron Paul and advocate free competition in currency?  Then the grand Fed experiment known as the US Dollar can sink or swim based on the preferences of consumers.

 

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