China Post: the GOP Gold Commission Plank "could reverberate around the world"

Written by Ralph J. Benko

Tuesday, September 11, 2012

The China Post: "One platform of the recent U.S. Republican National Convention that, ultimately, could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard. While it was perceived as a move to appease the party's extreme right wing, economists like Mundell think the world needs a limited return to the gold standard."

The Reagan Gold Commission's dissenting report, The Case for Gold, submitted by Gold Commissioners Ron Paul and Lewis Lehrman, is called, by the Cato Institute, a "landmark." It remains widely read and increasingly appreciated, while the majority report, rejecting gold, has become a dead letter.  The 2012 GOP platform contains a plank calling for a new commission to reconsider the recommendations of the original Gold Commission.  While provincial, Euro-centric, Neo-Keynesians such as Paul Krugman mock the call for a new commission it is being received around the world with great interest and appreciation.  The China Post writes, as part of a longer, fascinating article entitled Currencies: Reevaluating the ghost of gold:

One platform of the recent U.S. Republican National Convention that, ultimately, could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard. While it was perceived as a move to appease the party's extreme right wing, economists like Mundell think the world needs a limited return to the gold standard.

“Currencies are the ghost of gold,” Mundell said in a speech to the Asia Society in Hong Kong last year. And while few believe the U.S. will move back to the gold standard, Mundell noted that 40 years is a relatively short period of time to judge the experimental success of a global currency system that circles the U.S. dollar versus gold.

You can see this U.S. dollar universe at play in the way global investors awaited word last month whether the Fed would introduce QE3, printing cash to help bring down the value of the dollar and make U.S. goods more competitive in the global markets. But central banks in Asia and elsewhere cringe at these moves — the extra U.S. cash sloshes around the global economy, seeking the best places for return, which these days are developing markets like Indonesia, Mongolia and Brazil.

But that influx of U.S. dollars — as we saw in the early rounds of “currency wars” in 2010 and 2011 — both can spur inflation and raise the value of local currencies, hurting their competitiveness abroad.

Erratic currency value slides in 2008 were an under-reported catalyst of the recent financial crisis, Mundell said.

Professor Mundell has not gone on record as advocating the restoration of the full-fledged classical gold standard.   Yet his observation that "Currencies are the ghost of gold" is astute, and, perhaps, telling.  In Mundell's Nobel Prize acceptance speech, he observed that "The international gold standard at the beginning of the 20^th century operated smoothly to facilitate trade, payments and capital movements." Couple his comments the near-reverence in which most Chinese policy makers hold him and there is more than the ghost of a possibility that a new Gold Commission may well prove a signature event for the restoration of the true gold standard. 

Do political platforms matter?  When the China Post says that one plank "could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard" perhaps should cause even the most hardened skeptics of the relevance of national party platforms to pause and reflect.