Posted by WARREN MOSLER on 23rd August 2012
Just when you think it can’t get any worse:
By Robin Harding and Anna Fifield
August 23 (FT) — The gold standard has returned to mainstream U.S. politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.
Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.
The move shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.
Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the issues were not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination.
“These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”
The proposal is reminiscent of the Gold Commission created by former president Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission ultimately supported the status quo.
“There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.
A commission would have no power except to make recommendations, but Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.
The Republican platform in 1980 referred to “restoration of a dependable monetary standard,” while the 1984 platform said that “the gold standard may be a useful mechanism”. More recent platforms did not mention it.
Any commission on a return to the gold standard would have to address a host of theoretical, empirical and practical issues.
Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.
A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.
Posted in Political | 36 Comments »
Posted by WARREN MOSLER on 23rd August 2012
Nice to see they are getting challenged on this.
With govt the net payer of interest to the economy the critics should ultimately win this one. You would need some seriously skewed propensities to spend to overcome the raw interest rate channels.
BOE Says QE Benefits to Economy Counter Harm Done to Savers
By Jennifer Ryan
August 23 (Bloomberg) — The Bank of England defended its quantitative-easing program against criticism that it affected savers, saying these costs must be weighed against the economic benefits and that the plan limited the depth of the slump.
“Without the bank’s asset purchases, most people in the U.K. would have been worse off,” the central bank said in a report published in London today. “This would have had a significant detrimental impact on savers and pensioners along with every other group in our society. All assessments of the effect of asset purchases must be seen in this light.”
The report is a response to a government request that the central bank explain the impact of its bond purchases, which began in March 2009 and will reach 375 billion pounds ($596 billion) in November. It aims to counter a government claim that loose monetary policy penalizes “savers, those with ‘drawdown pensions’ and those retiring now.”
The central bank said QE widened the deficits in defined-benefit pension plans that were already facing a shortfall before the program started, though that burden may fall on employers and future employees rather than those nearing retirement now. The impact on defined contribution plans has been “broadly neutral.”
The central bank also said that QE helped to boost other asset prices, benefiting returns on pensions and other savings. The comments echo those made by Deputy Governor Charles Bean in February, when he said the impact of QE on assets such as equities provides an “offset to the fall in annuity rates.”
The effect “is thus more complex than it seems at first blush,” Bean said in a speech that month.
“By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds,” today’s report said. However, those holdings “are heavily skewed, with the top 5 percent of households holding 40 percent of these assets.”
The Bank of England said the biggest factor in the drop in interest income that savers receive from deposits was the reduction in the key interest rate to a record low of 0.5 percent, not asset purchases.
Explaining the widening of deficits in defined benefit pension plans and the fall in the annuity income that can be purchased from other pension funds, it said the “main factor” has been the fall in equity prices relative to gilt prices.
This “was not caused by QE,” the central bank said. “It happened in all the major economies, much of it occurred prior to the start of asset purchases, and stemmed in large part from the reluctance of investors to hold risky assets, such as equities, given the deterioration in the economic outlook. Indeed, by boosting the economy, monetary policy actions in the U.K. and overseas probably dampened this effect.”
Posted in CBs, UK | 11 Comments »