Federal Reserve Chairman Ben Bernanke has taken his defense of the Federal Reserve System on the road. In response to recent critics of the central bank, notably Republican presidential candidate Ron Paul, Bernanke is scheduled to deliver four classroom lectures at George Washington University. In his first discourse, Bernanke was Bernanke, extolling the virtues of the Fed while criticizing calls to return the dollar to a gold standard.
One of Bernanke’s criticisms of a return to the gold standard is that it is not practical. By that he means, “It can be a waste of resources to secure all the gold needed to back currency, moving it from South Africa to the Federal Reserve Bank of New York’s basement.” But, the benefit of using gold to back currency is precisely because it is scarce and difficult to dig up and transport. Otherwise, it would have little value and be about as valuable as paper money.
A more significant criticism lodged by Bernanke against the gold standard is that it doesn’t prevent “short-term volatility.” According to the Fed chairman, “Since the gold standard determines the money supply, there’s not much scope for the central bank to use monetary policy to stabilize the economy.” By short-term volatility, Bernanke must be referring to those periods in the 19th century when the Second Bank of the United States and the federal government from time to time allowed banks to suspend payment in specie, thus enabling widespread currency inflation and financial volatility. The fact is that under a true gold standard short-term volatility would not exist. Prices would be stable and the artificial booms and inevitable busts caused by Fed monetary price fixing would not happen.
But, to his credit, Bernanke did acknowledge that historically, countries using the gold standard have experienced long periods of price stability. In fact, in the United States from the mid-nineteenth century until 1940, prices in the United States actually fell on average from year to year, the main exceptions being during war years.
So while even Bernanke admits that the gold standard is an effective means of producing stable prices, which after all benefit the poor, the elderly, and others on fixed budgets, why is he still so resistant to a return to the gold standard? The key is in the answer he gave to one student’s question about why Fed critics are pushing hard to return to it. Bernanke indicated that they want to remove some “discretion” the Fed has over the economy. It is this “discretion” that Bernanke and his monetary oligarchs used to dole out trillions of dollars in secret loans to their bank buddies who nearly brought the whole financial system to its knees. Many of them got a piece of the action – Citigroup – $2.513 trillion, Morgan Stanley – $2.041 trillion, Merrill Lynch – $1.949 trillion, Bank of America – $1.344 trillion, Barclays PLC – $868 billion, Bear Sterns – $853 billion, Goldman Sachs – $814 billion, Royal Bank of Scotland – $541 billion, JP Morgan Chase – $391 billion, Deutsche Bank – $354 billion, UBS – $287 billion, Credit Suisse – $262 billion, Lehman Brothers – $183 billion, Bank of Scotland – $181 billion
BNP Paribas – $175 billion, Wells Fargo – $159 billion, Dexia – $159 billion, Wachovia – $142 billion, Dresdner Bank – $135 billion, and Societe Generale – $124 billion. You see, with a gold standard these loans and other Fed schemes to benefit the bankers would not be possible. Thus, when Bernanke criticizes the gold standard, it is more than just professorial theorizing, it is a defense of the current corrupt banking cartel in America.
In the final analysis, Bernanke’s lecture series at GWU is nothing more than a publicity stunt and not a very good one at that. The Federal Reserve is an indefensible institution. Compounding his problem are arguments he is attempting to make against the gold standard which served our country well for so long. Anything he says cheats the students of valuable educational time. Perhaps the powers that be at George Washington should invite Ron Paul to debate Bernanke. Only then will the students get their money’s worth.