Heartland Institute's Peter Ferrara: Restore Gold Standard Before China or Russia Does

Friday, 01 Aug 2014 12:32 PM

By John Morgan

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The gold standard is the foundation for restoring booming growth and prosperity in the United States because it would keep the dollar stable and head off inflation, according to Peter Ferrara, a policy director at the Heartland Institute and White House veteran.

Ferrara, who worked in policy and legal positions under Presidents Ronald Reagan and George H.W. Bush, wrote in a column for Forbes that few Americans today even know what the gold standard is.

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He noted the U.S. Constitution provides that Congress should define the dollar as a specific weight of gold.

“But since America abandoned the gold standard in 1971, the purchasing power of the dollar has declined by 85 percent. A dollar saved in 1971 was worth only 15 cents by 2012,” he wrote. “When America was on the gold standard, the real rate of economic growth averaged nearly 4 percent a year. Since then real annual growth has stagnated at about 25 percent less. Under Obama the Magnificent, real growth has been barely half what it was under the original American gold standard.”

According to Ferrara, the gold standard strongly encourages capital investment, and means wages are unlikely to become depreciated by inflation.

“Under the gold standard, working people would control the money supply, not elitist bureaucrats. If the Fed increased the supply of dollars beyond the people’s demand for dollars, people would exchange dollars for gold. The people would consequently stop the Fed before it could create inflation.”

Reinstating the gold standard would be easy, Ferrara believes.

“The gold standard could be restored first by legislation simply instructing the Fed to follow a price rule in conducting its monetary policy that would maintain a stable dollar price for gold,” he wrote. Before the gold standard was abandoned in 1971, gold prices were pegged by the government at $35 per ounce.

“If America restored its gold standard, other countries would quickly follow. Otherwise, their economies would fall behind. The Chinese and the Russians could be expected to do the same immediately. Indeed, if America does not act, nothing would stop the Chinese from adopting their own gold standard for their currency, with Russia to quickly follow.”

Wikipedia notes that under a gold standard monetary system, “gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for currency.”

In an appearance on Newsmax TV, Steve Forbes, chairman and editor-in-chief of Forbes Media, also asserted that a return to the gold standard would stabilize and strengthen the U.S. economy

"All it would mean is that the dollar would have a stable value, which it had for 180 years from the time of George Washington through the early 1970s,'' Forbes said

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