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A return to the gold standard? Not likely

In this month's cover article (subscribers' link) in the SMI newsletter, I listed several of the arguments made by the gold bulls. One was the suggestion that the U.S. might some day return to a gold standard. It's assumed to be the only way guaranteed to rein in out-of-control federal spending and defeat inflation once and for all.

I indicated that of all the bullish arguments, this seemed the weakest. It relied on the Congress and president to conspire to limit their own spending ambitions. This seems to me an obvious non-starter.

Here's the relevant excerpt:

In recent decades, rare has been the monetary heavyweight who would openly suggest a return to a form of gold standard. Following the various financial and currency crises of the past three years, that's no longer the case. Last year, the president of the World Bank called for a return to a fixed rate exchange system (the former one broke down in 1971), adding, "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."...

Gold bugs have seized on the possibility of a new gold standard and made the calculations to determine what gold's price would need to be in order for the dollar to once again be backed by gold. One approach to doing this is to compare the amount of dollars in the Fed's monetary base ($1,700 billion) with the amount of gold the U.S. currently owns (263 million ounces). The answer pegs the required price of gold at about $6,400 ounce, 350% above current levels.

The problem with this particular bullish argument is that a gold standard restricts a government's freedom to print money to pay for every whim. A return to one, even in partial form, seems only remotely plausible, if not unthinkable.

Here's a similar skeptical response, except in this writer's view the "blame" for the unlikelihood of a successful return to a form of gold standard lies not with the political class but the American people:

The voting booth would quickly crush any attempt to bring back what the masses do not understand, and the American people have little understanding of what money is.

In addition, and despite another old proverb that tells us "we have gold, because we cannot trust governments," your average American, especially her elite, harbors an extreme trust of government. It can solve all problems in their view, it can even tame "climate change" if only given a chance, and something as fundamental as the provision of money cannot, and should not, be left to anything as independent of political manipulation like adhering to a gold standard requires. Democratic America is simply not prepared for a gold standard...

We'll soon be testing Americans' appetite for spending discipline as Rep. Paul Ryan introduces his plan for avoiding the debt crisis that everyone knows is coming unless we dramatically change our present course. Everyone wants a solution. Few are willing to sacrifice.

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