The Case For The Gold Standard...In The Wall Street Journal

Although only appearing in the Opinion section, the piece makes the case for gold as a way of preventing imbalances in the economy. The effects of the dollar standard aren't confined to the U.S. goverment being able to run huge deficits; it also engenders a bubble economy.

In the 1970s, the mole took the form of high inflation and stagnation. In the 1980s, high interest rates and big budget deficits that reared their heads. In the 1990s, regional or one-sector investment bubbles triggered emergency easing of interest rates by the Federal Reserve. Finally, reacting to deflation fears following the bursting of the dot-com stock-market bubble, the Greenspan Fed pushed the federal-funds rate down to 1% or less and kept it there for far too long.

This brought forth the Mount Everest of bubbles, a boom in U.S. residential real estate derivatives that spread all over the world. When credit-worthy investors and firms can borrow money for virtually nothing and aggressively leverage their investments in a market that seems headed in only one direction, no force on earth—not even an Obama-appointed regulator—is going to stop them from making that bet.

Now Ben Bernanke's Fed is repeating recent patterns of keeping interest rates too low for too long, creating new bubbles and risking a whack-a-mole encore: 1970s-style stagflation. Before that happens, we need to lead the world back to the monetary system that worked better than any other—and, moreover, the one most appropriate for a global economy that is integrating about as rapidly as it was in 1900.

Unfortunately, as the EU has hinted, a gold standard isn't feasible when governments are used to deficit spending. If the United States can be compared to Greece, then a United States on the gold standard can be compared to present-day Greece. It looks to me like the U.S. won't be ready for a gold standard unless the U.S. government racks up surpluses. Given the entitlements crisis, that's all-but impossible without restructuring.