The Dollar, Gold and the Quality of Money
by Charles Kadlec
by Michael Pollaro: The
US Government’s Fiscal Plight, an Enormous Problem Without a Solution?
Is gold money?
directed to Federal Reserve Chairman Ben Bernanke by Congressman
Ron Paul in last weeks hearings
before the House Financial Services Committee, strikes terror in
the heart of all central bankers.
stunned and then answered, No: Gold is an asset.
price of gold reflects global uncertainties, he explained. The
reason that people hold gold is as a protection against what we
call tail risks: really, really bad outcomes.
The daily headlines
report those potential risks: governments needing bailouts, from
Greece to Harrisburg, Pennsylvania; the possibility that the euro
will splinter; runaway deficit spending in the U.S.
headline, it is becoming increasingly apparent how much the governing
class has overreached. Those who believe in government are simply
running out of other peoples money. For example, President
Obamas call to reverse the tax break given to owners of corporate
jets in his 2009 stimulus bill would supposedly raise $300 million
a year in revenue, enough to cover less than two hours of current
deficit spending. Even if the Federal government could tax 100%
of personal income in excess of $250,000 a year, it would collect
little more than half of the revenue needed to balance the budget.
world results mock the conventional wisdom that given the power
to spend, borrow, tax and print money, elite public servants can
manage the economy and protect the average individual against the
vicissitudes of life. Instead, government itself has become a source
of systemic risk, and a direct threat to our prosperity and
At the center
of this political upheaval is the quality of money itself. Is
gold money? is a show stopper because it raises the questions:
What is money and what power should government have to manipulate
to these questions reveal how our most basic trust in government
has been betrayed.
When you or
I accept dollars in exchange for providing goods and services, we
do so trusting that when we spend those dollars, they will
be accepted for an equivalent amount of goods and services. Thats
how money frees us from a barter economy.
Trust is always
an assessment of some future action. Making a grounded assessment
requires us to understand who is making the promise, what action
they are promising, and whether they are sincere and competent to
fulfill their promise.
When an individual,
company or government has a good credit rating, we are saying that
we trust they will keep their promise to pay off their debts in
So it is with
the value of money. Today Bernanke is making the promise effectively
to do his best to achieve the Feds dual mandate
of achieving maximum employment and stable prices.
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© 2011 Forbes