What's crazier than creationism and gold? It's in your wallet
Dear Friend of GATA and Gold:
Lawrence Summers, former U.S. treasury secretary and president of Harvard, is reported to have remarked the other day that "the gold standard is the creationism of economics":
Of course Summers meant the worst sort of disparagement, to liken gold standard advocates to religious crazies. And yet there are various creationisms and various gold standards.
What is called young earth creationism may have begun in 1650 with the Anglican bishop of Ireland, James Ussher, who famously calculated from his biblical research that God had created the universe in October 4004 B.C. Old earth creationism doesn't attempt to pinpoint the moment, arguing that the Creator's time frame is not man's and that His day as recounted in Genesis cannot be known to man. Old earth creationists may consider the issue settled by God's rebuke to Job: "Where wast thou when I laid the foundations of the Earth? Declare, if thou hast understanding." Despite their vast presumption to knowledge, even presidents of Harvard weren't around then.
The historical gold standard pegged a currency to a fixed amount of gold and made the currency convertible. Essentially the money was gold and gold was the money, often with silver thrown in, though never at a very satisfactory ratio. Thus currency devaluations were obvious; there was no fudging them, as when the London Gold Pool, the gold price-rigging mechanism of the Western central banks throughout the 1960s, a coordinated and public scheme of gold reserve dishoarding meant to keep the value of the U.S. dollar at one 35th of an ounce of gold, collapsed in March 1968.
Then there is the more flexible sort of gold standard operating behind today's dollar, in which the U.S. government and the central banks of its allies undertake largely surreptitious gold sales, leases, swaps, and derivatives operations, essentially short sales of gold, to maintain the value of their currencies.
Gold trader, market analyst, and mining entrepreneur Jim Sinclair has been anticipating implementation of a gold standard without convertibility, what he calls a gold cover clause, in which the U.S. government would pledge to keep its money supply in a fixed ratio to its gold reserve. Of course such a mechanism might require of the U.S. government a lot more transparency with its gold reserve and international agreements, formal and informal, than it lately has permitted, the Federal Reserve in particular having recently been forced by GATA to acknowledge that its has many impossibly sensitive gold-related secrets:
And then there might be still another gold standard, a system in which currencies are simply always judged against each other in freely trading markets, much as was proposed by the Austrian school economist Friedrich Hayek in 1977. Gold inevitably would be one such currency, and given the world's traditional and renewed enthusiasm for it, probably the leading measure of all the rest. At least the many decades of Western central bank intervention in the gold market, both open and surreptitious, suggest that central banks know damned well what their primary competitor is.
Of course GATA may incline toward something like the latter gold standard, insofar as restoration of a traditional gold standard would have the government rather than the free market again determining the price of gold.
If all these gold standards are indeed crazy ideas, what can be said of the current international monetary system, in which only one country issues the world reserve currency, a boom-bust cycle is injected into most economies, the world is expropriated through the reserve currency-issuing country's chronic trade deficits, big and parasitic financial institutions are enriched and rescued by governments at the expense of the working class, and more and more government intervention is required to prevent markets from manifesting themselves and restoring some democracy and transparency to the planet?
Of course until very recently Summers himself was a primary architect of this system, and yet he presumes to mock both creationism and gold's monetary functions. Now that's crazy.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.