My post title is actually a little too conciliatory, because I don’t think Bob’s overall position holds up to scrutiny. But, I definitely misunderstood him in my previous post, and I can’t explain it myself. I was in a Connecticut airport about to board a flight that had been delayed by Air Force One (seriously, that’s what the Delta lady speculated), so I blame Obama for the miscommunication…
Anyway, Bob takes me to task in his latest for “failing to understand the gold standard.” It’s true, I misinterpreted his proposal, and (besides Obama’s visit to Connecticut) the only defense I have, is that I had only read one of his posts, not his first one attacking the Heritage Foundation’s Ron Utt.
First of all, let me reiterate that the issue of the gold being stolen doesn’t really distinguish between the proposals to either sell the gold, or to allow dollar holders to redeem it. Look: Utt said, “The government should sell the gold for $1,400 an ounce and use the proceeds to reduce the deficit.” Wenzel is saying, “No way, that would let the government profit from its theft. Instead of that, I propose that the government make a standing offer to sell its gold for $5,000 [at least] an ounce, to anyone who wants, and then use the money to…?”
Obviously the above aren’t literal quotes, but that is what each man’s position reduces to. So you can see why I pounced on Bob initially and had some fun with it. (Of course, the joke wasn’t too funny since I thought he was doing a firesale, not just restoring redeemability. Oh well, no one said comedy was easy.)
Second and more serious: In the book I co-authored with Carlos Lara, we actually proposed something similar to what Bob is suggesting today. Namely, I said that Bernanke should tomorrow hold a news conference and announce that in one year, he will peg the dollar forever to gold at $2,000/ounce. In the meantime, he would take the maturing bonds on the Fed’s balance sheet and use the proceeds to accumulate gold, rather than rolling it over into more Treasuries. As the date approached for the peg to kick in, Bernanke would have to adjust the overall size of the Fed’s balance sheet to make the market price of gold move toward the target price of $2,000/ounce.
So contrary to Bob, I’m not opposed to reintroducing the gold standard. However, I don’t think Bernanke is going to do that anytime soon, and so I’m also a fan of the government selling off its assets and not raising the debt ceiling.
There is no clean, purely libertarian answer to how to wind down a bloated government. Yes, FDR ripped people off back in 1933, but I don’t think there’s any way to undo that now, at least with respect to dollar holdings. Instead, you’d have to go look at the records and figure out which people were stuck turning over gold at $20.67 in 1933, and then calculate how much they got screwed, and then do whatever formula you wanted and carry their estates forward to figure out the current heirs of those reparations. In other words, you couldn’t just do something with the gold and current dollar holders.
It’s also true that no matter what the government does in practice, it is going to be corrupt and benefit the fat cats. If the government sold off billions in assets, it would give sweetheart deals to the buyers–no question. But at least it would get those assets back into the private sector. I am open to suggestions for better versus worse ways to privatize, but I think it’s a bit shortsighted to say, “Nope, I foresee a way this particular suggestion would be corrupted, so it’s off the table.”
The reason I am in favor of Utt’s idea is that I want a few of the Tea Party Republicans to hold tight on the debt ceiling. Geithner et al. are telling everybody the world will end if Congress doesn’t raise the debt ceiling, but as I pointed out to The Judge, that’s simply false. They just need to cut spending by a little bit, and they could make up the gap by selling off assets. Yes I would rather they cut spending down to $0. But I am not an all-or-nothing kind of guy; I will applaud moves in the right direction. It would be fantastic if Congress didn’t raise the debt ceiling, slashed spending by (say) $200 billion, and raised the remaining $550 billion or so by selling (a) $300 billion worth of gold, (b) $50 billion worth of oil out of the SPR, and (c) $200 billion in offshore mining rights.
A lot of this stuff isn’t so much because it will actually happen, but it’s good for various pundits to bring them up just to see the politicians and bureaucrats invent bogus excuses. E.g. the Wall Street Journal recently had a piece detailing how many hundreds of billions the government had in assets, like gold, oil, and student loans, but that Geithner refused to consider selling them because he didn’t want to “disrupt the financial markets.” And the context was Geithner’s insistence that Congress needed to raise the debt ceiling to avoid Armageddon.
Another point is that many people are skeptical the government actually has the gold it says it has. So it would also be funny to watch them squirm if the public really got serious about selling off the gold to cover the deficit.
Final point: I would need to look into this more, to see exactly which entity owns the government’s gold. But if the Treasury (as opposed to the Fed) technically owns it, then the two proposals go hand-in-hand: the Fed could go back on a gold standard, and start stockpiling gold by buying it from the Treasury and thus reducing the deficit.