With college kids, Bernanke gets away with dissing gold

3:41p ET Tuesday, March 20, 2012

Dear Friend of GATA and Gold:

Dow Jones Newswires reports below how Federal Reserve Chairman Ben Bernanke criticized the gold standard during a lecture today at George Washington University in Washington, D.C. While GATA is not a gold standard advocacy organization, we can only wish that Bernanke would engage this subject where he risked a more informed and critical audience.

This is not just because we'd love the chairman to be asked how he squares the Fed's "transparency" campaign with its refusal to provide public access to the central bank's records involving gold:

http://www.gata.org/node/9917

It's also because some of Bernanke's arguments today, as reported below, are so pathetic.

... Dispatch continues below ...

Echoing Warren Buffett, Bernanke says the gold standard is stupid because it's a matter of digging gold up only to bury it in a hole somewhere else. And yet gold was and, thanks to the Internet, today has been restored as a regular circulating currency like any other.

"Since the gold standard determines the money supply," Bernanke said, "there's not much scope for the central bank to use monetary policy to stabilize the economy." You bet, there isn't! That's the whole #@*^!#$ point! Half the world is screaming at the Fed, "Spare us your 'stabilization'!" And the Fed is "stabilizing" only what it messed up in the first place.

Then, with supreme cheek, Bernanke blames the gold standard for spreading to the rest of the world the U.S. central bank's "policy errors," as if spreading policy errors around quite without the gold standard hasn't lately been the Fed's main business.

Well, that's American college education for you. And people come here from all around the world to get it.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Bernanke Defends Country's Break with Gold Standard

By Kristina Peterson
Dow Jones Newswires
via The Wall Street Journal
Tuesday, March 20, 2012

http://online.wsj.com/article/BT-CO-20120320-711511.html

WASHINGTON -- Federal Reserve Chairman Ben Bernanke on Tuesday defended the country's break with a gold standard at the first of his four lectures at George Washington University.

Bernanke explained to a packed lecture hall why a gold standard harmed the global economy during the Great Depression. Some recent critics of the Fed have pushed for a return to the gold standard, in which paper money is backed by gold. The U.S. was on the gold standard between the Civil War until the 1930s, and the tie was fully severed by President Richard Nixon in 1971.

The gold standard poses both practical and policy problems, Bernanke said. On the practical side, it can be a waste of resources to secure all the gold needed to back currency, moving it from South Africa to the basement of the Federal Reserve Bank of New York, for example, or as he put it, "all this gold is being dug up and being put back into another hole."

More significantly, a country on a gold standard will see more short-term volatility, Bernanke said.

"Since the gold standard determines the money supply, there's not much scope for the central bank to use monetary policy to stabilize the economy," he said. Bernanke noted the gold standard did not prevent frequent financial panics.

During the Great Depression, "policy errors" in the United States spread to other countries that were also on the gold standard, Bernanke said. Countries on the gold standard must maintain fixed exchange rates, making it easy for bad policies in one country to spread to another on the gold standard, he noted.

The gold standard can also cause both periods of deflation and inflation in the medium term, Bernanke said. If not "perfectly credible," the gold standard can be subject to speculative attack and ultimately collapse as people try to exchange paper money for gold. However, he did acknowledge that over decades, prices are very stable for countries using the gold standard.

Part of the reason the Fed failed in its managing of the Great Depression were its attempts to stay on the gold standard, he noted. One of Franklin Delano Roosevelt's most successful moves as president was to begin to take the country off the gold standard, he said.

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