Who knew a person can write into the St. Louis Fed, pose a question, and receive a thoughtful response from one of the thousands of real, live, PhD-trained economists working at the Fed.
Hey, and the Fed isn’t dodging the tough ones. Consider this one,
Q. Why doesn’t the U.S. return to the gold standard so that the Fed can’t “create money out of thin air”?
Oh boy how will David Andolfatto, who has taught economics all over the world before lending his considerable mind and talents to the Fed, answer this one?
Well, if you thought Andolfatto was going to say, PhDs are smarter than a barbarous relic, or that the money supply must be flexible for trade and commerce reasons, blah, blah, blah, you’d be wrong.
The U.S. doesn’t return to the gold standard to control inflation because….even if the gold standard were reinstated the President could just steal everyone’s gold, revalue it, and presto a lower dollar and price inflation. A gold standard is futile in the face of executive branch tyranny.
Dr. Andolfatto words it this way using a historical example,
Unfortunately, a gold standard is not a guarantee of price stability. It is simply a promise made “out of thin air” to keep the supply of money anchored to the supply of gold. To consider how tenuous such a promise can be, consider the following example. On April 5, 1933, President Franklin D. Roosevelt ordered all gold coins and certificates of denominations in excess of $100 turned in for other money by May 1 at a set price of $20.67 per ounce. Two months later, a joint resolution of Congress abrogated the gold clauses in many public and private obligations that required the debtor to repay the creditor in gold dollars of the same weight and fineness as those borrowed. In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the dollar value of gold on the Federal Reserve’s balance sheet by almost 70 percent. This action allowed the Federal Reserve to increase the money supply by a corresponding amount and, subsequently, led to significant price inflation.
Andolfatto goes on to say that price inflation has been “low and stable” over the past 30 years so the PhDs have got this handled. Only an academic would say such nonsense. Not only have prices constantly marched upward over the past three decades, but the unfettered Fed has produced a continuous stream of asset booms and busts.
For 2013, the Fed wishes you and yours would stop worrying about this money out of thin air thing…and of course a happy, stimulative new year.