As our regular readers know I have discussed this topic on a number of occasions. For Bernanke to say this is very disingenuous and is a clear indication of his motives because it is highly unlikely that he does not understand this concept…which means he is lying.
This is not rocket science. You do not need a PHD in economics to understand this. A 6 year old child with a calculator can divide the number of US Dollars in circulation¹ of roughly $1.8 Trillion USD by the number of ounces the US claims to own, which is 261,498,899.316 according to the US Treasury².
The number we arrive at is $6880 per ounce and some change. The problem is not that there isnt enough gold, its that having gold at $6880 per ounce would send a clear signal to the world that the Fed is actually totally incapable of managing the US economy, has a broken monetary policy, and that there is something seriously wrong with the US Dollar (assuming the government didn’t come right out and set us on a gold standard).
This is the typical argument presented by any Keynesian economist yet it is the weakest argument they have and takes very little logic to discredit it. For Bernanke to resort to this argument shows just how desperate and under pressure he may be.
WASHINGTON (Dow Jones)–Federal Reserve Chairman Ben Bernanke defended the central bank’s effect on the dollar Tuesday, pushing back at the idea that policy makers should consider alternative proposals like the gold standard.
Bernanke, appearing before the Senate Banking Committee, was pressed by Sen. Jim DeMint (R., S.C.) on the viability of a return to a gold-backed economy or the idea of the Treasury Department issuing bonds payable in gold. Bernanke, who has studied the issue, said a return to the gold standard wouldn’t work.
“It did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. So I don’t think it’s a panacea,” Bernanke told DeMint.
Additionally, Bernanke said there were a number of practical issues that would prevent the return of gold as the world standard. Namely, there’s not enough gold in the world to effectively support the U.S. money supply.
“I don’t think that a full-fledged gold standard would be practical at this point,” Bernanke said, declining to opine on the gold-backed bond issue because he was not familiar with the idea.
Sen. Mark Kirk (R., Ill.) also engaged Bernanke on the currency issue, questioning whether the Fed’s $600 billion bond-purchase program is in effect monetizing the U.S. debt. Bernanke noted that the U.S couldn’t have currency outstanding if there were no Treasury securities to back it up, and that even the most steady economic times the Fed engages in the buying and selling of U.S.-backed securities.
Kirk, however, noted that the U.S. did have currency not backed by federal debt at one time in its history: under the administration of President Andrew Jackson, the nation’s seventh president.
Bernanke, appearing amused, was quick to respond.
“So this was before the Civil War, this was during the period where individual banks issued currency. We didn’t have a national currency,” Bernanke said.
Not to be outdone, Kirk asked whether it was possible for a country to have a currency without a trillion dollar debt. Bernanke said that was the case.
²US Gold Reserves