An article parroting the establishment's current view on gold

[ClaytonB]

Stumbled across this Telegraph article by Roger Bootle. Have no idea what his credentials are in establishment circles but I think his article perfectly sums up what I imagine the establishment’s view to be.

Plenty of people think the gold price may go a good deal higher. It could; but equally it could collapse. Because gold has no yield it has no reliable basis for assessing fair value. The arguments made in support of gold now could still be made if the price were $10,000, $20,000 – or $100. Gold is an extremely risky investment.

I agree with Bottle here. However, whether gold continues its upward rise or collapses back to pre-crisis levels (inflation-adjusted) is in the hands of the very central banks who are wringing their hands over the economic crisis they have created.

… some people support resurrecting gold’s monetary role.

But there are four powerful arguments against. First, while the Gold Standard helped to sustain long-term price stability, it did not achieve anything like price stability in the short run. In 1822, the UK experienced deflation of 14pc. Yet by 1825 this had given way to inflation of 17pc.

Forgive the pun of calling such mild swings a Golden Era by comparison to what we have today. Also, note that - gold standard or no gold standard - England had a central bank in 1822.

Second, the idea that gold offers a guarantee of stable money values in the long run, and therefore supports confidence and long-term decision-making, is a delusion.

Note that the price-stability argument is a strawman - consistent sound-money advocates do not say that we should have gold money for price stability reasons. However, Bootle gets much more devious in the rest of this paragraph:

In the past, countries were committed to the Gold Standard, which was widely expected to last forever. But we now know that gold can easily be replaced by a paper-based system. Once the genie is out of the bottle, it cannot be put back in. This means that there is no reassurance from relying on gold in the first place.

Basically, you can translate this: “We [the Elites] have once succeeded in overthrowing sound money around the globe so you can never have confidence in sound money, anyway, because even if you brought it back for a time, you could never be sure we wouldn’t be able to repeat our past success.”

Third, it is a fallacy to think that a return to a system based on gold would end financial instability. The 1920s asset boom, and the crash of 1929 which followed, occurred while the US was on the Gold Standard.

Strawman again. Plus, the US had a central bank in the 1920’s.

Similarly, the supposedly halcyon period of 19th century Britain was marked by frequent panics and financial crises.

In which Nathan Rothschild and his central bank had no hand, of course.

Even with gold at its base, the financial system consisted of an extensive structure of financial assets and liabilities, and was accordingly just as prone to booms and busts as our current system.

Perhaps, but only those with an appetite for the risk involved had to suffer the consequences. Gold would still buy milk and eggs no matter what the going price of East India Company paper was.

Fourth, the world’s supply of gold tends to rise at a much slower rate than the trend growth of real and financial activity which would govern the demand for it. This means that the system would display a marked deflationary bias.

*groan

Deflation in a commodity money economy logically entails increased production of the monetary commodity. This is elementary, ECON 101 supply-and-demand.

The world certainly needs a new international economic and monetary regime to replace the bedlam which currently threatens a return to the 1930s. … Yet, after last week’s beanfeast in Seoul, we are as far from Keynes’s goal as ever. At least we seem no nearer to falling for the gold delusion.

This seems to sum up what I believe the Establishment’s current view to be. “Well, we’re not making the progress we had planned to make in bringing about a world currency, however, at least we’re no closer to having the masses demand gold as money!”

Clayton -

[JoeTerp]

his entire approach to economic history is backasswards.

[The_Freeman]

In the past, countries were committed to the Gold Standard, which was widely expected to last forever. But we now know that gold can easily be replaced by a paper-based system. Once the genie is out of the bottle, it cannot be put back in. This means that there is no reassurance from relying on gold in the first place.

Well, this is basically true… It would be ridiculous to expect central banks to return to a 100%-backed hard gold standard. That’s why the solution is abolition of legal tender and central banking rather than a return to a gold standard controlled by a central bank.

I don’t know what Keynes’ goal is… Aren’t we all dead in the end anyway?

[Azure]

I’m pretty sure that by “Keynes’ Goal” he meant Keynes’s dream to institute a world central bank with a world fiat currency. He even came up with a name for it, the “Bancor.”