OPINION
Marketwatch/Benn
Steil – Council on Foreign Relations/8-11-2016
“For all its problems, the current dollar-based non-system has
been far more resilient than the Bretton Woods gold-exchange standard, which
never operated as White intended. And the real alternatives — a classical
gold standard, in which interest rates are driven by cross-border gold flows;
or a supranational currency, like Keynes advocated at Bretton Woods — are
likely to remain too radical politically. We are, therefore, almost surely
stuck in a fiat dollar world for some time to come.”
MK note: Those of you who follow this commentary will recall
previous articles, posts, etc on Benn Steill’s gold advocacy. Steil,
according to his previous writings and speeches, sees gold being utilized in
years to come as a reserve asset to offset the risks associated with central
banks holding national currencies, rather than it being used as direct
backing for the dollar. In turn, his thinking is closely allied with
that of Nobel Prize winner, Robert Mundell, who also advocated the use of
gold for the same purpose.
As Steil asserts, we are stuck with the fiat dollar (yen, euro, pound and
so on down the list) for some time to come. As long as gold is allowed
to float freely up or down dependent on genuine market forces, this
architecture will suffice. Because we are not on the gold standard, and
probably will not be for the foreseeable future, the best recourse for the
average investor is to put himself or herself on a personal gold
standard. Though the gold standard appears impractical at this
juncture, the next step in this process for the U.S. would be to revalue gold
on the Fed’s balance sheet at current prices (mark-to-market).
This particular essay by Steil provides some useful history for those who
want to gain a deeper understanding of gold’s history and how we got to where
we are today. I did not know, for example, that France sent a
battleship to New York harbor to pick up its gold deposited at the New York
Federal Reserve (gunboat diplomacy at its best) in the early 1970s.
Germany and a few others are attempting to repatriate gold now sans the
battleship – a process that has proven to be painstaking for reasons too
elaborate to entertain in a short post like this. Suffice it to say
that a couple verities are still at play with respect to official (as well as
private) gold ownership:
(1) They who own it make the rules, particularly in times of monetary
crisis.
(2) The possession of it has ruined fewer people (and
countries) than the lack of it.
Those who do not have gold, or do not have enough, might take such notions
to heart – individuals and nation states alike.
