We Need a Gold Standard Now
Monetary policy in Washington - and it is done in Washington - is completely cock-eyed and broken. We are in the third year of a zero interest rate regime. Now that sounds good -- it was something that was supposed to get us out of that horrible economic crisis we were in. What could be better than very cheap money; essentially being able to borrow money for nothing? But it doesn't work out that way. Zero percent interest rates deny people the ability to benefit from saving: on a fixed income many people want interest rates to be existent so they can get some income off of their savings. Without savings, there's less credit.
But also it affects business in a very negative way. A lot of the banks, particularly mid-sized and smaller banks that were not in "too big to fail" category that you only hear about in Washington, cannot lend money without borrowing from the larger banks, and at zero percent they are very reluctant to give the lines of credit that even a profitable business needs in order to hire. Businesses that are sound are not going out of business, and they aren't because we certainly do have great entrepreneurs in this country. But if you can't draw on a line of credit, and those are down by two-thirds as compared to 2008, expansion is very difficult such that everything is put on hold.
The zero interest rate regime is now in its third year and on top of that Ben Bernanke did something he called quantitative easing -- you can just think of that as printing money because that is what it is. It was supposed to have ended this month but nobody knows for sure whether Mr. Bernanke is really going to end it because the economy is so weak. Nine percent unemployment in the third year of a so-called recovery is totally unacceptable, and there is no sign that the economy is getting any traction from easy money.
But these are all Washington-based issues. These are things that you send Senator Grassley, Senator Harkin, and your congressman to Washington to solve.
Why am I here at the grassroots? Well, Congress is involved. Congress is a codependent in this Federal Reserve policy because when they run big deficits, when they spend money that they don't have, in effect they go across the street to the Federal Reserve in Washington and ask them to print the money that they are spending. So I have a confession to make: I have spent the better part of a year, over a year at my day job (I work in Washington D.C., I have to admit that) trying to get congressmen to act on it. Because they created the Federal Reserve almost a hundred years ago they have the power to do something about it. But I can't, and other colleagues of mine have not been able to get them interested.
Where the interest really is, given that the Congress benefits from the Federal Reserve printing all this money - is in the states. I found myself about three months ago in Utah and all of a sudden freshman state representatives who hadn't served in political office in some cases were passing a legal tender act in which the state of Utah was to recognize gold and silver coins as legal tender, the first time any state had done that in over 100 years.
I went out there again two and a half weeks ago for the ceremonial signing by Governor Gary Herbert. And they're already making arrangements -- Utah businessmen and Tea Party activists -- to have an alternate monetary system. A depository will be able to take in gold and silver coins which as of May 10 have been legal tender. In exchange customers can get a Visa debit card linked to those coin holdings to use them as money.
Here in Iowa, just on reading about what had happened in Utah, State Senator Kent Sorenson introduced a similar bill, which State Representative Kim Pearson introduced in the House. And it's spreading to other states as well. There are at least 12 states that have legal tender bills under consideration. States are taking things into their own hands. They are not getting any satisfaction from Washington, no action from Congress. There is, however, a grass roots movement afoot.
Being here in Burlington, Iowa means something extra. Not just that you can set up your own legal tender act, hopefully in the next session in the legislature. But you have a special role because the presidential candidates must come here. I have been in four presidential campaigns including Ronald Reagan's first one in 1976 and then again in 1980 for Reagan and not one of the candidates that I supported, including Reagan himself, as some of you probably remember, ever won Iowa.
On the other hand, I have seen the power of Iowa to winnow out candidates, to narrow the field, and more important, to put issues on the national menu. The people of Iowa have an ability to do that. Everyone in this room has every possibility of seeing a candidate for the Republican Presidential nomination, which is a wide open race as you know. You must use your leverage with these people. You must ask them about returning to a gold standard.
Now there are people, especially in Washington, who say, "How can you talk about something that is so antiquated? Didn't that go out with wooden sailing ships? And are we going to be carrying gold bars around or trying to have very heavy gold coins in our pockets?"
No, the gold standard simply makes gold the final money. It brings an end to zero interest rates, quantitative easing, and Fed financing of congressional deficits. This paper system, which has existed in full form for 40 years since President Nixon severed the dollar's final link away to gold in 1971, has run its course. There have been good economic times during it when you had a strong willed president like Ronald Reagan and a strong opponent of inflation at the Fed like Paul Volcker, but they are long gone and the people in charge now have no idea what they are doing. I could demonize them, I could say they are evil, but it isn't that. The problem is systemic. The system has broken down.
It must be fixed and the impetus must come from you. Gold worked far better than any other system that has ever existed. There was virtually no inflation in the last forty years of the gold standard, there was less volatility than in any other system that we've ever had. We did have to go off the gold standard at times, during the Civil War for example, but we always got back and the economy always stabilized and without the gold standard we would not have had the Industrial Revolution in this country and in Britain.
There was enormous progress; enormous economic integration in the world because all over the world people know that gold holds its value. The same amount of gold that could buy a family car in 1910 can buy one now. The same amount of gold that could buy an expensive men's suit in 1940 can buy the same suit now. If you price those things in dollars the increase is obscene: $500 for the car, now twenty-some thousand for a reasonable facsimile. So it isn't gold that is volatile, it is the paper dollar that is volatile. It is the monetary authorities in Washington that don't know what they are doing.
With your leverage you must ask the candidates about this. Now some of them have paid lip-service to gold, they have mentioned it every now and then, but as some goal far in the future. We don't have that luxury. The system is terminal. It is destroying the American economy, destroying our prospect for increasing good jobs for us and our children and grandchildren.
The time to fix it is now -- it is not one of a series of goals -- it is the main thing. I have seen it in Utah and I have seen it in Iowa. You have the leverage because every one of you has a chance to go at these candidates. You must hold them to account on our monetary system.