Gold rush? Why gold standard glitters for some in GOP.
Backers of a gold standard – a view popular with many tea party advocates – see a gold-backed currency as a way to rein in government spending and minimize the role of the Federal Reserve.
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Since then the value of the dollar has “floated,” depending on the state of the economy and Federal Reserve policy.
Now, at least two out of seven major Republican candidates have said they support returning to a “gold standard” which would require the US to backup every dollar with gold stored in Fort Knox or the New York Federal Reserve.
IN PICTURES: Gold's journey
Backers of a gold standard – a view popular with many tea party advocates – see a gold-backed currency as a way to rein in government spending and minimize the role of the Federal Reserve. Traditional economists consider the concept a bad idea, arguing it would hamstring the ability of policymakers to respond to changing economic times.
The most vocal pro-gold-standard candidate is Ron Paul, now running third in Iowa polls. It is one of his signature issues. “We need honest money, a gold standard and not paper money out of the Federal Reserve system,” said Mr. Paul at a debate in Ames, Iowa in August.
Newt Gingrich, running second in Iowa, says he is in favor of “hard money with a very limited Federal Reserve.” He also said he favors a dollar that is “good as gold.”
One of the most vocal advocates of returning to the gold standard is Jeff Bell, the policy director of American Principles in Action, which recently sponsored a forum for Republican candidates in South Carolina.
Mr. Bell argues that gold should be the final currency of the world, instead of the dollar. He thinks any American should be able to go to a bank and convert his or her money into a gold ingot or two. The actual amount a person would receive would depend on the market. “Say you have thirty months of market activity, then the secretary of the Treasury locks in a value for the price of gold based on that activity,” he says. “That would give you a good approximation of how many dollars would be represented by an ounce of gold.”
Advocates for gold argue that policymakers can’t be trusted to run the economy. In theory, using gold limits the amount of money the Federal Reserve can print, which might prevent inflation from decimating the value of the currency.
“The market would control the money supply, not some PhD from MIT,” says Bell.
Of course there was a time when the US government did offer its citizens a chance to exchange their cash for gold or silver. Between 1816 to 1914, a gold standard existed with most nations linked to a specific gold price. As World War I began, the system ended.