The race for the White House is in full swing with the top two candidates for the Republican nomination -- Newt Gingrich and Mitt Romney -- exchanging body blows like bloodied boxers.
But it's dark horse Ron Paul who seems to be tapping into the deep-seated cynicism with which many Americans view the economy, the prolonged downturn and how we can stop the boom-and-bust cycle.
His top target: The Federal Reserve. His solution: "End the Fed" and return to the gold standard.
How do I know this is catching on? Well, Gingrich, looking to expand on his win in South Carolina and attack Romney from the populist angle, is now embracing some of Paul's economic libertarianism. Last Friday, he announced that, if elected president, he would create a new commission on gold to "look at the whole concept of how do we get back to hard money" and how we can ensure the dollar is "worth 30 years from now what it is worth now."
Anthony Mirhaydari
The move could be a master stroke if it fires up the Tea Party base and wins over Paul voters. And it could provide a valuable weapon if the eventual GOP nominee seizes on it as Republicans try to defeat President Barack Obama. Could the gold standard ever come back?
Taking on power and money
Monetary reform challenges the very center of the Wall Street/Washington power nexus so many dislike. Occupy Wall Street protesters have looked with anger at the $7.7 trillion the Fed committed, behind closed doors, to save big, over-bonused and bailed-out banks. The Tea Party gets angry when Fed policymakers push the government toward bailing out the housing market and Miami condo speculators.
All are tired of the Fed's monetary policy experiments, its bouts of quantitative easing, a monetary base that has gone from $800 billion to nearly $2.8 trillion in the past few years, and the bouts of inflation in commodities such as gas and food that result from all this. Many realize that it was the Fed's mistaken obsession with the risk of deflation -- falling prices -- and its overconfidence in its own abilities that incubated the housing bubble, starting in 2003, and led it to deny anything was wrong as the bubble started to burst in 2007.
Everything that's happened since has been an effort to reverse that original mistake. The megabanks have been given cash at almost no cost, and play money has been pumped into Wall Street on the misguided hope that lower borrowing costs and higher stock prices will increase economic growth.
The strategy staved off catastrophe when it was first deployed in 2008 and early 2009. Now, however, it's just making things worse.
Can't the Fed see it's not working? We can
The problem is that more debt and currency debasement isn't the solution in an era of tight commodity markets and of deleveraging (the process of shedding household and business debt). The $600 billion "QE2" initiative, which ended last summer, merely pumped up oil prices and cut consumer spending. Those levers had been pulled by former Federal Reserve Chairman Alan Greenspan and President George W. Bush to inflate us out of the 2001 downturn; they would not work again so soon.
The American people realize that what the Fed and Washington are doing isn't working and that the policy elites are on a dangerous course. And the people are willing to consider dramatic moves, such as tying the dollar to gold once again.
Consider the longer term, too: The dollar has lost 85% of its value since President Richard Nixon and ended the de facto gold standard under the postwar "Bretton Woods" global exchange-rate regime. Under the true gold standard, which lasted from 1834 to 1914 (save for the Civil War years), the power of the dollar remained steady.
The chart above of consumer price inflation going back to 1913 tells you all you need to know. Once the dollar was unleashed from gold in '71, the Fed was no longer constrained. Prices surged as new money was freely printed.
No wonder what we might call "Ron Paul-onomics" is resonating. A Rasmussen poll conducted last October found that 44% of Americans favor a return to the gold standard, with 28% opposed. That goes up with the belief that the change would to sock it to "the man": When those surveyed were told the move would "dramatically reduce the powers of bankers and the political class to steer the economy," support jumped to 57% while opposition dropped to 19%.
Evidence is building that we need a hard reset to harder money and a refocusing on the structural problems we face, from an inefficient health care system driving the government's long-term deficit to a trade policy that allows Asian mercantilists to take advantage of blue-collar American workers.
But make no mistake: It would be a painful change, maybe too much for the country to handle.
Everybody loves at least half of what Ron Paul says, but the fact is that Libertarianism is a dysfunctional theology, just the one aspect of letting companies regulate themselves is sheer foolishness. The reason we have laws is because of past abuses of freedom, such as the Love Canal and the Cuyahoga river in Ohio that caught on fire 11 times in 100 years the last time in 1969 and it lead to the clean water act of 1972. Water isn't suppose to burn and people don't want to buy a home and get cancer because some unregulated company dumped toxic chemicals there for years unchecked. Paul says" well you can file suit on the billion dollar corporation and that will keep them in line" Good luck suing a company with teams of lawyers, how deep are your pockets.
