One question I've heard more lately: Now that the gold price is over $1,500 an ounce, shouldn't the U.S. sell its gold reserves—which were mostly acquired from U.S. citizens in 1933 at $20.67 or bought at $35 an ounce under the post-World War II Bretton Woods monetary system?
If, as Lewis E. Lehrman and I haveshown, restoring the gold standard is necessary to sort out the U.S. economic and fiscal mess—specifically, preventing future episodes like the Great Recession of 2007-09, reversing the decline of U.S. international competitiveness and restoring lost Federal budget discipline—the answer is emphatically no: A growing U.S. economy will need more gold, even if the gold price rose no farther.
Yet even if not, the cautionary example of IMF gold sales is also decidedly negative. Since gold was demonetized by international treaty in 1978 during President Jimmy Carter’s administration, various IMF managing directors (mostly French Socialists) have successfully campaigned to sell chunks of the IMF's gold reserves (which were started along with the IMF in 1944). The biggest IMF gold sales occurred in 1976-80 mostly under Jacques de Larosiere, in 1999-2000 under Michel Camdessus, and in 2009-10 under Dominique Strauss-Kahn.
Since each trade essentially sold gold to buy goods to fund the IMF itself and give to poor countries, their wisdom can be gauged by converting U.S. consumer (or producer) prices into gold terms, as in the nearby chart. (Note that the swings were smallest under the gold standard, and greatest since the dollar’s last link with gold was severed in 1971.)
The record might look better decades hence if the gold price plummeted. But at the actual average gold prices of about $228, 232, and $1157, those IMF gold trades have lost about 56%, 77%, and 33% of their respective values so far, adjusted for changes in the U.S CPI.
The clear lesson: It’s far wiser to keep than sell U.S. gold.
Will America start prospering again — as it has not prospered for over a decade? Likely yes. But not without a fight. Now that Jim DeMint has raided Steve Moore from the Wall Street Journal that card might be Heritage Foundation vs. the White House. Could be big.
John Holdren, now Obama’s White House science advisor, 40 years ago termed America “overdeveloped.” Holdren co-authored a 1993 book, Human Ecology: Problems and Solutions, with Anne and Paul Ehrlich reportedly saying that, “A massive campaign must be launched to restore a high-quality environment in North America and to de-develop the United States….” (Emphasis supplied.)
As a soldier of France, no one knew better than Professor Jacques Rueff, the famous French central banker, that World War I had brought to an end the preeminence of the classical European states system and its monetary regime, the classical gold standard. World War I had decimated the flower of European youth; it had destroyed the European continent’s industrial primacy. No less ominously, the historic monetary standard of commercial civilization had collapsed into the ruins occasioned by the Great War. The international gold standard -- the gyroscope of the Industrial Revolution, the common currency of the world trading system, the guarantor of more than one-hundred years of a stable monetary system, the balance wheel of unprecedented economic growth -- all this was brushed aside by the belligerents.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
A Rueffian Synthesis
LBMC’s integrated approach to economic forecasting can fairly be called “the Rueffian synthesis.” It would be more modest to call it “a” Rueffian synthesis, since that would allow for other Rueffians who might conceivably quibble about our application of Rueff’s ideas. But it appears that, apart from LBMC, there are no other Rueffians in the world – even in Rueff’s native France – using Rueff’s ideas as a basis for economic prediction.
"Commercial banking grew out of the desire (inspired by the profit motive) to conserve cash (gold) and by means of credit to provide financial elasticity and growth in the commercial process of exchange. That is, all producers (sellers) who desired true money (gold), instead of the short-term secured credit bills – promissory notes of their customers (the buyers) – could, through the mediation of goldsmiths-turned-bankers and bill-merchants-turned-bankers, obtain real money by discounting their bills of exchange for gold with the emerging commercial bankers of early modern Europe. The combined institutions of stable money and secured credit enabled commercial civilization to make of the entire world the only closed economy."
Argentina is floundering. Brazil is struggling. Colombia is growing. Colombia is now the third largest economy in Latin America, according to Capital Economics. The Wall Street Journal’s Darcy Crowe and Taos Turner wrote recently: “After Argentina’s economy dwarfed Colombia’s for decades, economists say the trend reversed in January as the...
One of the themes for the Akan gold counterweights is the electric mudfish.
Image courtesy of AfricanMasks.info
Spark From The Deep by William Turkel has this to say about the fish upon which this counterweight is modeled:
The electric catfish also played an important role in the west African kingdom of Benin, which...