Gold Standard comes up in Republican Party Platform
From August 27th till the 30th, Republicans will once again gather for the 2012 National Republican Convention, where presidential candidate Mitt Romney will put forward his official party policy. An unconventional suggestion, included in the draft of the party platform, is the proposal for a “gold commission”, which would look at restoring the link between the dollar and the gold. It would be a part of a larger overall audit of the Federal Reserve monetary policy and an evaluation of its performance in the past years.
The idea of a gold standard has been advocated strongly by Ron Paul over the past five years against the backdrop of the Fed’s of easy monetary policy. Congressman Paul said he decided to enter politics on the day when Richard Nixon decided to shut the “gold window” in 1971. On August 15 Nixon went on prime-time television and announced: “I have directed the secretary of the Treasury to take the action necessary to defend the dollar against speculators…..I have directed secretary [John] Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets.” In 1981, former president Ronald Reagan created a gold commission to revisit the gold standard model. The commission ruled in favour of the current status quo, saying “restoring the gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation.”
Even if a commission is established, it would do nothing but simply re-examine the possibility of a return to the gold standard, in a similar process to what happened in 1981. According to Sean Fieler, chairman of the American Principles Project, the commission will be able to educate people on the benefits of a return to gold. “There is a growing recognition within the Republican Party and in America more generally that we’re not going to be able to print our way to prosperity,” he said.
Despite claims that expansion of Fed’s balance sheet would lead to substantial price rises, inflation has been kept under control in recent years. On the other hand, gold has been quite volatile with the price of the metal rising more than 500 per cent over the past ten years. If the US returns to a fixed money supply via a gold standard, the Fed would lose its ability to offset demand shocks by varying interest rates. This could potentially mean higher unemployment and a more volatile economy with fewer tools to fight economic crises.
Stanford University Professor John Taylor, who is a supporter and advisor of Mitt Romney, said that a return to gold standard is not the right way to increase economic stability. “There are better ways to do that, to get to those more rule-like policies,” Taylor said for Bloomberg. Pegging the dollar to “a broad price index” would be preferable because it would be “more robust.
Analysts believe Mitt Romney’s talks about a gold standard are simply meant to rally Ron Paul’s core.
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