Gold, Conservatives and Conspiracy Theory
Stephen Moore, who was appointed by Donald Trump to the board of governors of the US Federal Reserve, is one of those who sees gold as the ultimate refuge. He has just stated that yellow metal prices are expected to rise to $ 2,000 an ounce and that any prudent investor should maintain a significant proportion in his portfolio. "The idea that a federal government can print so much money to print jobs is pure fantasy," he said. However, history has shown that the so-called stability brought about by gold is illusory.
While, in times of economic growth and prosperity, banks are quick to issue more money on loans and others besides allowing their reserves, thus contributing to higher prices. They are unable, as the economy shrinks and part of this funding ends up in default, to make all their deposits to savers, thus actively contributing to the collapse of the money supply and to deflation. An adjustment is therefore necessary because the terror still felt by many in relation to inflationary pressures leads them to want to wage a retrograde struggle. If the gold standard were reestablished in the United States, the Federal Reserve should establish a rate of convertibility of the dollar against gold, that is, fixing one ounce of yellow metal is exchangeable against a certain amount. dollars. However, under what criteria should such a conversion occur when gold prices have been highly volatile over the last decade? The Fed may be flooded with gold if the price is too high and, conversely, it will face a gold rush if the gold convertibility price vis-à-vis the dollar is set too low.
In fact, history has shown that all gold standard systems are bound to fail. The most blatant – which is even contested by its most ardent followers – being that the Great Depression was, if not induced, in any case unquestionably aggravated and prolonged by the gold standard prevailing in the western industrialized nations of the world. time. In fact, the history of the Great Depression and the gold standard are intimately linked, and it is only thanks to the abandonment of this pattern by the United States and many European countries that central banks have effectively relaxed their monetary policy.
While it was in force, this correlation with gold acted as a maneuver that required monetary authorities to keep interest rates high in order to maintain the gold's convertibility price against the dollar, while a crisis context demanded an immediate reduction of the fees to revitalize the activity. So, the 2007 and 2008 Federal Reserve would have been forced to raise their interest rates (rather than aggressively reduce them as it did) in the aftermath of the subprime crisis if the gold standard regime was in place! Is it necessary to make simulations of the devastating consequences for the American and global economy of such a rate increase in the real estate implosion, or on the verge of the collapse of Lehman Brothers?
Let us understand once and for all: the "barbaric relic" prevents any macroeconomic flexibility, and confiscates the autonomy of states because it is needless to say that paper money (and tomorrow the digital currency) allows a much more optimal control of money supply. In relative terms, the European sovereign debt crisis is also a case study showing that a country (or a regional bloc) exacerbates its vulnerabilities when it links its economic destiny to gold prices or – in this case – that it gives up any control on its own currency. Members of the European Union certainly have not linked their respective currencies to gold, but have indexed it to the euro, which acts, in effect, as a stallion. Having worked well for ten years, punctuated by correct growth and small financial accidents, the "euro standard" had to reveal its structural weaknesses thanks to Greek budgetary problems, the implosion of Irish and Spanish speculative bubbles, or a frivolous economic policy Italian.
A crisis factory
It was impossible for these weakened nations to pursue an "expansionist" policy in order to revive their economy either by the devaluation of their currency (which was fixed to the euro) or by the reduction of their interest rates (which were totally out of their control because only of the European Central Bank). It was obvious that one and the same (by definition inflexible) standard that brought together countries – such as Greece and Germany – with such different cycles and economic characteristics – even antithetical – was a crisis factory because it was an active contributor. of choking a block for another benefit.
In short, the gold standard is a fantasy, similar to that of wanting to reconnect with an ex-girlfriend just because of some good shared memories, despite a common life we know to be impossible. That investors and speculators buy and sell gold is their role. But is it serious to tie the fate of national currencies to gold: in other words, that our new currency becomes gold? A certain fringe of the Republican Party and, of course, Donald Trump, who is a strong supporter of conservatism, seems – with Stephen Moore – to defend the return of some form of correlation with gold.
But being conservative means and justifying the re-establishment of a policy that has fallen into disuse for almost a century? Unless this strategy is purely demagogic because it targets the typical constituency of Trump, whose overwhelming majority lets go of the worst conspiracies that – in all logic – sacralize gold?
* Www.gestionsuisse.com – www.artradingfinance.com