Reviving Gold Standard Studied in Republican Platform
The proposal is included in a draft platform to be submitted for approval to the Republican National Convention, which is scheduled to start Aug. 27 in Tampa, Florida. The draft calls for a commission to study “possible ways to set a fixed value for the dollar,” similar to one in the early 1980s that studied “the feasibility of a metallic basis for U.S. currency.”
That commission, appointed early in Ronald Reagan’s presidency, “advised against such a move,” the draft said. Industry experts such as Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank in San Francisco, said the U.S. isn’t likely to return to the gold standard, which President Richard Nixon abandoned in the 1970s.
“I just don’t see it being a discussion that has any legs or probability,” said Davidson, who helps oversee $169 billion. “We all want to go back to the good old days, but when there was a gold standard economic ups and downs were quite common.”
The platform statement said that, three decades after the Reagan study, the U.S. should reconsider the “feasibility of a metallic basis” for the dollar “as we face the task of cleaning up the wreckage” of President Barack Obama’s policies.
The statement was included along with a provision that advocates an annual audit of the Federal Reserve Board and the 12 regional reserve banks, including monetary policy decisions.
Both reflect campaign themes adopted by Texas Representative Ron Paul, who ran against Republican candidate Mitt Romney in the party’s presidential primaries. Paul’s supporters have been threatening to instigate a floor fight if the platform wasn’t amended to reflect their views.
Romney said on Aug. 20 that “the Federal Reserve should be accountable” so he “would like to see the Fed audited” in a way that preserves its independence. He hasn’t endorsed legislation the House passed last month to have the Government Accountability Office, a watchdog of Congress, audit the Fed, including monetary policy deliberations.
Gold capped the biggest weekly gain since January amid speculation that the Fed will take additional steps to spur the economy, boosting demand for the metal as an inflation hedge.
The Fed has the ability to take further steps “to ease financial conditions and strengthen the recovery,” Chairman Ben S. Bernanke said in a letter to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee. The Aug. 22 letter was released to Bloomberg News yesterday.
Gold futures for December delivery rose 10 cents to settle at $1,672.90 an ounce at 1:43 p.m. in New York yesterday, adding 3.3 percent for the week. Gold is up 6.8 percent this year compared with a 12 percent rally for the Standard & Poor’s 500 Index. Bernanke’s comments drove the benchmark for American equities up 0.7 percent to 1,411.13 yesterday.
The gold standard is unlikely to return because of a lack of international agreement on the matter and insufficient supply, according to the industry-funded World Gold Council.
“The inability to achieve widespread international agreement on the standard” makes a return unlikely as well as determining “what price to return to it at,” David Schraeder, a spokesman for the New York-based group said in an e-mail. He also cited growth of gold supplies that “may not necessarily match the appropriate growth in the monetary base.”
Romney distanced himself from a return to a gold standard in a CNBC interview in January.
“I know that in the past when we had a gold standard, the idea that somehow it was detached from or free from any interference by Congress was simply wrong because even with the gold standard someone has to decide what is the conversion rate between gold and the dollar,” Romney said.
The draft language pleased anti-tax Tea Party movement supporters who attended the platform hearings, and talk about a convention showdown has quieted among Paul’s supporters.
“We like the idea of looking at monetary policy and looking at what we call sound money,” said Russ Walker, an Oregon delegate and a vice president of FreedomWorks, a Washington-based Tea Party umbrella group.
John Taylor, one of 576 economists backing Romney, said “there are better ways” to achieve economic stability than the gold standard. Pegging the dollar to “a broad price index” would be preferable because it would be “more robust,” Taylor, a former Treasury undersecretary and a Stanford University economics professor, said yesterday in an interview on Bloomberg Radio’s “The Hayes Advantage” with Kathleen Hays and Vonnie Quinn.
Republican panel leaders avoided endorsing a return to the gold standard at an Aug. 21 press conference in Tampa after the platform hearings were completed.
The gold-standard study was included “so we have some language for evaluation to make sure that we have a good, sound monetary policy,” said North Dakota Senator John Hoeven, a co-chairman of the platform panel.
The proposal “is primarily symbolic to demonstrate the desire of the Republican Party to be more fiscally responsible,” said Philip Orlando, who helps manage $360 billion as chief equity market strategist at Federated Investors Inc. (FII) in New York.
Orlando said it represents a Republican attempt to “demonstrate to the electorate that we’re the party that’s concerned about trying to restore fiscal prudence.”
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