Gold standard insures the dollar has more buying power: Opinion

Gov. Jim Florio’s “A Proposed Return to the Gold Standard is Cause for Concern” contains a certain irony: Mr. Florio's embrace of the most important decision made about our money in our lifetime made by President Richard Nixon, who left office under a severe cloud.

The facts are clear. During the 40 years prior to Nixon ending the gold standard the nation’s economy grew, on average, 4.5 percent per year. Since the Aug. 15, 1971 “Nixon Shock,” our average GDP growth has dropped by more than 25 percent annually. Had we maintained gold standard growth rates, this country’s economy -- and on average each of your paychecks and net worth -- would be 50 percent bigger today.

Mr. Florio refers to the ensuing "easy money" policies of the Federal Reserve as “stimulating” the economy. He omits that this has led to 1 percent of the population benefiting from 95 percent of the stock market wealth produced by “Quantitative Easing.” Meanwhile, middle-income families have seen their buying power drop 8 percent since 2007, caught in the grip of wage stagnation and a rising cost of living. The rich are getting richer and the middle class is getting poorer.

According to the U.S. Bureau of Labor Statistics, between 1946 (year of the creation of Bretton Woods gold-exchange standard) and 1971 (the year Nixon "temporarily" closed the gold window), average annual inflation was just under 3 percent. From 1971 to present, the annual inflation ballooned by around 50 percent.

Mr. Florio claims: “The flexibility needed for governmental financing is diminished through the imposition of the Gold Standard.”

Simply not true.

It's time for a real discussion about returning to the tried-and-true gold standard that underpinned the nation's economic growth for 180 years.

The gold standard insures the quality, i.e. buying power, of the dollar. It doesn’t limit the quantity of money. As economist Nathan Lewis has calculated, from 1775 to 1900 the money supply increased by 163 times while gold reserves rose only 3.4 times. The gold standard defines, rather than restricts, money.

Mr. Florio continues, “The supply of gold available today would never be able to sustain a U.S. economy now over $3 trillion. To peg the dollar to gold now would trigger massive deflation, constrict the money supply and cause a deep recession.” Yikes, Jim, US GDP now is, according to the World Bank, around $16 trillion, not (except as a pure technicality) "over $3 trillion."

Regarding Gov. Florio's stated fear of deflation and depression, the consensus transition plan, based on the work of Reagan Gold Commissioner Lewis E. Lehrman and others, provides for a market discovery period for calculating the ratio of gold to dollars. Thereby there is no possibility of restoring the gold standard to triggering a massive deflation, constricting the money supply, or causing a deep recession.

Mr. Florio raises the specter of environmental impact, which is nothing more than a red herring. Every gold standard proponent I know is in favor of strong environmental standards to prohibit toxic pollution. There is a technological breakthrough for the use of nontoxic corn starch to resolve any toxicity concern going forward, now being developed by the gold mining industry.

The key benefit in re-establishing the gold standard is “equitable prosperity.” In a speech last week, Fed Chairman Janet Yellen pointed to the widening income gap. Stating that inequality that has developed since the end of the Bretton Woods gold-exchange standard, is the worst in the last hundred years, Madam Yellen, perhaps inadvertently, makes a compelling case for a return to the gold standard. The Feds' continued printing of paper money out of thin air correlates with the growth of the "income gap." Only a return to a dollar as good as gold can return America to a nation where, as President Kennedy said, “A rising tide lifts all boats.”

It’s time for a real discussion about returning to the tried-and-true gold standard that underpinned the nation’s economic growth for 180 years. Likening the gold standard to zombies and vampires, and calling for driving a stake through its heart, is an amusing Halloween season trope. Driving that stake would be straight through the heart of the equitable prosperity and economic security of American workers and median-income families.


Source: http://www.nj.com/opinion/index.ssf/2014/10/lonegan_response_to_florio_gold_standard_oped_hed_goes_here.html