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Bernanke’s Publicity Stunt

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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.

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About Kenn Jacobine

  • John Smith

    Price stability is a poor exchange for extreme inefficiency in resource allocation, like happened when millions all over the world dropped what they were doing to go to the diggings periodically in American history.

    That being said, Bernanke cannot blame people for taking drastic measures to protect the value of money, when he daily assaults it with quantitative easing. Perhaps if he wants people to regain some sense, he will stop borrowing against the productive power of two or three generations of future americans.

  • Doug Larson

    Great story and I totaly agree with your comments. It will only be time before the US and the world wake up to the fact we need a gold standard to fix the crisis. Doug Larson

  • Igor

    Kenn names the REAL problem: “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.”

    Yes, the problem is that the Fed (the way it is currently operated) is OWNED by the bankers sitting on it’s board, who immediately pursue policies that enrich themselves.

    The solution is to reconstitute the Board to represent broader interests and to make them hew to publicly proffered regulatory policies.

    Commodity based currencies fail, with horrible results, and the gold standard is no different.

    In the end, all currency systems are fiat systems. What’s needed is clearer policy regulation not a better blindfold for hiding the unpleasant truth.

  • Kenn Jacobine

    The gold standard was a success for the working man in America that is why the politicians and bankers ended it. Now they control our money and produce policies and practices that benefit their interests – deficit spending, monetization of debt, etc… Regulation will not solve the problem, what is needed is a structural fix. Ending the Fed and re-instituting a commodity based currency is what the Doctor prescribes.

  • Jordan Richardson

    The gold standard was a success for the working man in America

    When?

  • Kenn Jacobine

    Jordan, did you actually read the article?

  • troll

    …what’s needed is the end of capitalists’ and their sycophants’ control of production and distribution

  • Kenn Jacobine

    troll, do you wander through life in an unconscious state?

  • roger nowosielski

    there go the communication prospects, Eden, you were so high on only a week ago.

  • Zingzing

    No, kenn, he just living in a bizarro world version of the past where his pet ideas never had any bad results, just like you are. One would think you’d recognize a fellow time traveler…

  • troll

    Kenn – I’m sure it’s true that living under our current regime of commodity production has had a deleterious effect on my consciousness

    nowosielski – it’s been years since I was high on the possibilities of communication here

    Zingzing – it’s true that I try to limit my participation in our economy to what Marx called the ancient mode of production

    now if you’ll excuse me it’s time for me to get back to opening that new vein in my commune’s gold mine

  • Kenn Jacobine

    If you go public with that vein let me know I’ll buy some shares.

  • zingzing

    “it’s true that I try to limit my participation in our economy to what Marx called the ancient mode of production”

    it’s always funny when people write stuff like that on computers designed (and sold) by one of the richest corporations in the world and produced in near slave-labor like conditions overseas.

  • roger nowosielski

    He said “limit,” zing.

    Pay attention!

  • Zingzing

    He also said “try,” which would be the more important word.

  • Igor

    Actually, a successful economy NEEDS capitalists, just as it needs workers, thinkers, teachers, etc.

    What we don’t need is for all power and wealth to be concentrated in capitalists hands. We need good regulations, rules, and policy goals in government.

    Capitalists perform a useful function: they concentrate surplus wealth so that it can be deployed in (often new) businesses and other efforts that increase societies wealth overall. they also provide employment for people who have those skills and interests.

    The problem we have is that ALL power and wealth has been concentrated in their hands, and they are simply not competent or ethical enough to handle so much power well, and disaster results.

  • jamminsue

    Regarding returning to the Gold standard, what about the practical aspect, that there isn’t enough gold (assuming one would use current dollars as par).
    Nixon took us off because he was scared!

  • Glenn Contrarian

    Kenn –

    I don’t remember – did you ever address what would happen to the world’s tech industry since gold is such an integral part of most electronics including almost all cell phones and computers?

  • Kenn Jacobine

    Glenn,

    In fact I just read an article indicating that electronics firms are switching from gold to copper because of the price of gold. Thus, the market will adapt and gold is through the roof precisely because the dollar is worthless. You put gold behind it and the market will produce balance.

  • Glenn Contrarian

    Kenn –

    Perhaps. I’ll give you that.

    But there’s another problem, and I don’t see a way out of this one. Going to the gold standard requires that not just America, but the whole world would go back to the gold standard. Otherwise, you’d have some nations on the gold standard, and other not on the gold standard – and those not on the gold standard suddenly have an opportunity to manipulate the gold supply of those who are on the gold standard. If you’ll remember, France tried to do just that to us, and that was one reason why Nixon took us off the gold standard.

    Furthermore, going to the gold standard would mean that gold-producing nations (that are not on the gold standard) would suddenly have – in the eyes of the American government – far more wealth than they did before, all out of proportion to their real worth. Suddenly South Africa would be richer than Germany…and then there’s Russia. Would you really want Putin to have a lot more influence on the American economy? He’d use it.

    It’s been said that intelligence is knowing whether a thing can be done, and that wisdom is knowing whether that thing should be done in the first place. There’s a lot of great rhetoric and even some good numbers on the side of those who want to go back to the gold standard…but the way is rife not just with problems but with very real dangers to our national economic security.

  • Kenn Jacobine

    First of all, America is 4th in worldwide gold production. Secondly, how much influence does Saudi Arabia have over our economy because of oil? The fact is that the market is much more complex than you give it credit for. When there is a need an entrepreneur will fill it. Perhaps even more mines will be open in the U.S. due to the need just like more drilling should take place there if there was an oil shortage.

  • Igor

    Gold mining is a messy business, and there’s no good reason to bring it back.

    At the end, 19th century gold was mined hydraulically by washing away entire hills and hillsides into sluices, capturing the gold as an amalgamation with mercury and dumping the refuse into nearby rivers to be sent downstream. As a consequence valuable croplands were poisoned, as was an entire bay which had been a rich fishery.

    We mustn’t do that again.

    The downstream people now number in 10s of millions and the farmers have terrific political power, so we won’t let it happen again.

  • Glenn Contrarian

    Kenn –

    Secondly, how much influence does Saudi Arabia have over our economy because of oil?

    Hm. I seem to remember something called the “Arab Oil Embargo” back in the 1970’s. You might have heard of it….

  • Kenn Jacobine

    Why did they embargo the oil. Because we supported Israel in the 1973 War.

  • Glenn Contrarian

    Kenn –

    What, you don’t think they could ever come up with another excuse? If they did it once, they could easily do it again – that’s all the proof we need.

  • troll

    Kenn #12 – all of our mined gold goes directly into the production of golden calf charms for bracelets…people seem to value them highly as barter items for their added religious/artistic added value

    zingzing #13 – in the name of full disclosure I must admit that I wear store bought clothing drive an automobile and (of late) have indoor plumbing…my computer however is made mostly of bailing wire and duct tape

    Igor – note that your #16 in no way contradicts my #7…for clarity perhaps you’ll define your terms starting with your notion of what makes for what you call a ‘successful economy’

  • Igor

    #26-troll: asks me an excellent question: “…what makes for what you call a ‘successful economy’?”

    At the lowest level, a successful economy is one that achieves it’s goals (whatever THEY are).

    Determining the goals is a moral question, or a political question. Traditional economics (Smith, etc.) was concerned with moral justification of existing power, not with finding a moral econ. That’s a modern phenomena of Marx, Hayek, Freidman, etc.

    More later.

  • roger nowosielski

    Good response.